Day v. Persels

Decision Date10 September 2013
Docket NumberNo. 12–11887.,12–11887.
CourtU.S. Court of Appeals — Eleventh Circuit
PartiesMiranda L. DAY, Plaintiff–Appellee, Raymond Gunn, Interested Party–Appellant, v. PERSELS & ASSOCIATES, LLC, a Maryland limited liability company, Ruther & Associates, LLC, Jimmy B. Persels, Robyn R. Freedman, CareOne Services, Inc., a Maryland corporation, f.k.a. Freedom Point, Legal Advice Line, LLC, Defendants–Appellees, 3C Incorporated, etc., et al., Defendants.

OPINION TEXT STARTS HERE

James E. Felman, Kynes Markman & Felman, PA, Gus M. Centrone, Centrone & Shrader, LLC, Herbert R. Donica, Donica Law Firm, PA, Charles F. Ketchey, Jr., Trenam Kemker, Thomas A. Lash, Lash & Wilcox, PA, Clarisse Moreno, Katherine Earle Yanes, Kynes Markman & Felman, PA, Tampa, FL, for PlaintiffAppellee.

Michael T. Kirkpatrick, Public Citizen Litigation Group, Washington, DC, Altom M. Maglio, Maglio Christopher & Toale, Sarasota, FL, for Interested PartyAppellant.

Marie A. Borland, Lara J. Tibbals, Hill Ward Henderson, PA, Charles F. Ketchey, Jr., David Thomas Knight, Hill Ward Henderson, PA, Matthew Leish, Carlton Fields, PA, David Matthew Allen, Mac Richard McCoy, Carlton Fields, PA, Tampa, FL, Catherine Anne Bledsoe, Lawrence S. Greenwald, Brian L. Moffet, Gordon Feinblatt, LLC, Baltimore, MD, for DefendantsAppellees.

Appeal from the United States District Court for the Middle District of Florida. D.C. Docket No. 8:10–cv–02463–TGW.

Before PRYOR and JORDAN, Circuit Judges, and PRO,* District Judge.

PRYOR, Circuit Judge:

This appeal requires that we resolve two main issues: first, whether a magistrate judge had subject-matter jurisdiction to enter a final judgment in a class action without first obtaining the consent of the absent members of the class; and second, whether a judge abused his discretion when he found that seven defendants would be financially unable to satisfy a judgment even though no evidence about the financial position of six of the defendants had been introduced. Miranda Day sued several debt management businesses and individual employees of those businesses on behalf of herself and a statewide class of about 10,000 consumers. Day and the defendants consented to allow a magistrate judge to enter a final judgment in the class action. 28 U.S.C. § 636(c). Day and the defendants then informed the magistrate judge that they had reached a settlement agreement, which expanded the definition of the class to a nationwide class of 125,000 consumers and released most of the claims of that class in exchange for no monetary relief for the absent class members. At a fairness hearing on the settlement agreement, Day and the defendants argued that the defendants would be financially unable to satisfy a judgment, but the evidence in the record supported the conclusion that only one of the defendants, Persels & Associates, LLC, would be financially unable to satisfy a significant judgment. The magistrate judge concluded that the settlement agreement was fair, adequate, and reasonable even though it did not provide any monetary relief to the absent class members because the defendants would be unable to satisfy a significant judgment. We conclude that the magistrate judge had subject-matter jurisdiction to enter a final judgment because absent class members are not parties whose consent is required for a magistrate judge to enter a final judgment under section 636(c). But we vacate that judgment because the magistrate judge abused his discretion when he found, without adequate evidentiary support, that the defendants could not satisfy a significant judgment, and we remand for further proceedings.

I. BACKGROUND

CareOne Services, Inc., offered credit counseling services that purported to allow debtors to lower their payments and pay off their debts. In November 2007, Miranda Day enrolled in CareOne's credit counseling services. As part of that arrangement with CareOne, Day received and entered a retainer agreement with Ruther & Associates, LLC, a law firm managed by Neil J. Ruther, and with CareOne for debt resolution services. Under the agreement, Day would make monthly payments to Ruther & Associates and CareOne instead of paying her creditors. Ruther & Associates and CareOne would accumulate these funds in an escrow account. Ruther & Associates and CareOne would then negotiate on behalf of Day with her creditors to settle her debt with payments from the escrow account. The agreement also provided that Ruther & Associates and CareOne would deduct a legal fee in the amount of 15 percent of Day's debt before she entered the agreement from her monthly payments. The agreement provided that the fees could be higher based on the complexity of the representation. When Ruther retired in 2008, he transferred the law firm to Jimmy B. Persels, and Persels renamed the law firm Persels & Associates, LLC. Both law firms employed Robyn R. Freedman, an attorney licensed in Florida, to assist in the credit counseling services, and Freedman was assigned to represent Day.

Day paid six monthly payments of $212.39 from January to June 2008 for a total payment of $1,274.34. None of the money that Day paid to the law firms was disbursed to her creditors. Instead, the funds paid for fees of the law firms. As a result of nonpayment, one of Day's creditors sued her on April 17, 2008, and Day tried to contact both CareOne and Ruther & Associates immediately after being served. In response to her inquiries, Day received an email from Freedman on April 21, 2008, that told her that Freedman had reviewed her file and would be working with the paralegal negotiators at CareOne to resolve her disputes with her creditors. Day received no further assistance from CareOne or any of the attorneys or law firms, and a default judgment was entered against her on July 10, 2008. After the court entered a default judgment, Day received a form answer to the complaint of her creditor that stated that it had been prepared by or with the assistance of Legal Advice Line, LLC.

In July 2008, another creditor sued Day. She again tried to contact CareOne, the law firms, and Freedman. A CareOne representative assured Day that CareOne would take care of the matter, but CareOne, Freedman, and the law firms failed to assist Day in that matter. Day filed for bankruptcy on July 15, 2008.

Day sued CareOne, Persels & Associates, Ruther & Associates, Persels, Ruther, Freedman, several companies that had provided debt settlement services but not legal representation to her, and one individual, who had provided debt settlement services to her. Day sued on behalf of herself and a class of 10,000 similarly situated residents of Florida who had sought credit counseling services from CareOne. Fed.R.Civ.P. 23(b)(3). In her complaint, Day alleged that the debt management defendants were liable to her and the class under the Florida Deceptive and Unfair Trade Practices Act, the Credit Repair Organizations Act, and based on several causes of action under common law. The defendants who did not provide legal representation, including CareOne, moved to stay the action against them and compel arbitration. The district court granted the motion to compel arbitration and stayed the action against all of those defendants except CareOne. The district court concluded that any claims against CareOne that arose from the retainer agreement could not be stayed because that agreement did not include an arbitration provision. Day and the legal service defendants, including CareOne, then consented to have a magistrate judge conduct all proceedings and to allow the magistrate judge to enter a final judgment. See28 U.S.C. § 636(c).

Day filed an amended complaint on behalf of herself and about 10,000 similarly situated Florida residents. Fed.R.Civ.P. 23(b)(3). The amended complaint added Legal Advice Line as a defendant. In her amended complaint, Day alleged that the legal service defendants were liable to her and the class under the Credit Repair Organizations Act and several causes of action under common law.

Eighteen days after Day filed the amended complaint, Day and the legal services defendants, including Legal Advice Line, notified the court that they had reached an agreement in principle on the resolution of the case and that they intended to enter a final settlement agreement in about 60 days. Day and the legal services defendants then entered a settlement agreement. The settlement agreement defined the class as all persons in the United States who had entered agreements for legal advice concerning debt with the legal service defendants on or after April 28, 2008, except those consumers who were class members in a class action pending in the Eastern District of Washington. The class, as defined by the settlement agreement, included over 125,000 absent members.

The settlement agreement limited the ability of the legal service defendants to collect fees from a client who entered a retainer agreement for debt management services after October 1, 2010. Under the agreement, the legal service defendants could collect fees from one of these clients only after the defendants negotiated a settlement with that client's creditor. The agreement also required the legal services defendants to modify their retainer agreement to disclose the amount that the client would pay in legal fees and to establish processes to ensure that clients seeking the assistance of an attorney were able to communicate with the attorney within a reasonable time. The agreement included a $100,000 cy pres payment to the American Bar Foundation. The agreement required that the legal services defendants pay the costs of administering the settlement and a $5,000 incentive payment to Day. The agreement also provided that the legal services defendants would pay attorney's fees up to $300,000 and that the complaint would be dismissed with prejudice. The agreement provided no monetary relief to the absent members, but released any claims that an absent member had...

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