Palm Tran, Inc. v. Credit Acceptance Corp.
| Decision Date | 12 December 2022 |
| Docket Number | CIVIL 20-12698 |
| Parties | PALM TRAN, INC. AMALGAMATED TRANSIT UNION LOCAL 1577 PENSION PLAN, Individually and On Behalf of All Others Similarly Situated, Plaintiff, v. CREDIT ACCEPTANCE CORPORATION, et al., Defendants. |
| Court | U.S. District Court — Eastern District of Michigan |
This is a putative class action lawsuit filed under the Private Securities Litigation Reform Act of 1995 (“PSLRA”). The lawsuit asserts violations of federal law based on alleged false and misleading statements and omissions, concerning Defendant Credit Acceptance Corporation's (“Credit Acceptance”) business operations, and adherence to the relevant laws and regulations. Specifically, Plaintiff Palm Tran, Inc. Amalgamated Transit Union Local 1577 Pension Plan (“Plaintiff”) asserts that the statements and/or omissions concern (i) “topping off the pools of loans that [Credit Acceptance] packaged and securitized with higher-risk loans”; (ii) “making high interest subprime auto loans to borrowers that the Company knew borrowers would be unable to repay”; (iii) “subject[ing] [borrowers] to hidden finance charges resulting in loans exceeding the usury rate ceiling mandated by state law”; and (iv) “[taking] excessive and illegal measures to collect debt from defaulted borrowers.” (ECF No. 1 at Pg. ID 6.)
On August 24, 2022, Plaintiff filed an “Unopposed Motion for Preliminary Approval of Class Action Settlement and Approval of Notice to The Settlement Class.” (ECF No 42) The Court held a motion hearing on August 30, 2022. The Court granted preliminary approval of the settlement and notice plan on September 19, 2022. (ECF No. 48.) The matters are presently before the Court on “Lead Plaintiff's Unopposed Motion for Final Approval of Class Action Settlement and Plan of Allocation” (ECF No 51) and “Lead Counsel's Motion For an Award of Attorneys' Fees and Payment of Litigation Expenses” (ECF No. 52). On December 7, 2022, the Court held a fairness hearing, during which both parties presented on the record. For the reasons that follow, the Court is granting both motions.
Credit Acceptance is a provider of financing programs, and related products and services to automobile dealerships throughout the United States. As of 2019, Credit Acceptance funded approximately 370,000 auto loans nationwide, of which Plaintiff alleges approximately 95% were considered to be ‘subprime.' The programs are offered through a nationwide network of dealers to consumers who otherwise may not be able to obtain financing. According to Plaintiffs, Credit Acceptance provided loans to consumers that it knew could not be repaid, in addition to charging excessive interest rates.
On August 28, 2020, the Massachusetts Attorney General (“Mass. AG”) filed a lawsuit against Credit Acceptance, alleging that for years, it made unfair and deceptive auto loans to consumers in Massachusetts. See Commonwealth v. Credit Acceptance Corp., Case No. 2084cv01954-BLS2 (Mass. Super. Mar. 15, 2021). The lawsuit further alleged that Credit Acceptance provided false information to investors regarding asset-backed securitizations that they offered to investors, and the company engaged in unfair debt collection practices. As a result of the Mass. AG lawsuit, Credit Acceptance's stock price fell $85.36 per share, which was approximately over 18%, closing at $374.07 per share over two trading days ending on September 1, 2020. Plaintiff maintains that due to Credit Acceptance's alleged wrongful acts and omissions, and the decline in its common stock, Plaintiff suffered damages throughout the class period.
On October 2, 2020, Plaintiff filed this lawsuit on behalf of the following class:
all persons and entities who purchased or otherwise acquired Credit Acceptance common stock from November 1, 2019 through August 28, 2020, and who were damaged thereby
(ECF No. 1 ¶ 55, Pg ID 26.) In the Complaint, Plaintiff alleges that Credit Acceptance violated Sections 10(b) (Count I) and 20(a) of the Securities Exchange Act of 1934 (Count II).
Rule 23(e) of the Federal Rules of Civil Procedure sets forth the procedures for the settlement of class actions. Pursuant to the rule, the court's role is to determine whether the proposed settlement is “fair, reasonable, and adequate.” Fed.R.Civ.P. 23(e)(2). District courts must “appraise the reasonableness of particular class-action settlements on a case-by-case basis, in the light of all the relevant circumstances.” Evans v. Jeff D., 475 U.S. 717, 742 (1986).
Several factors guide the inquiry: (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.
The court may approve a settlement agreement that binds class members only if it finds the settlement fair, adequate, and reasonable. Fed.R.Civ.P. 23(e)(2). The rule sets forth the following factors courts must consider when making that determination:
Id. The Sixth Circuit has extended “wide discretion” to district courts “in assessing the weight and applicability of [the factors it has identified].” Granada Investments, Inc. v. DWG Corp., 962 F.2d 1203, 1205-06 (6th Cir. 1992); see also UAW v. Ford Motor Co., 2006 WL 891151, at *14 (“The court may choose to consider only those factors that are relevant to the settlement at hand and may weigh particular factors according to the demands of the case.”).
Finally, where the settlement agreement includes the payment of attorney's fees, the court must assess the reasonableness of that amount. Wolinsky v. Scholastic, Inc., 900 F.Supp.2d 332, 336 (S.D.N.Y. 2012) (). “[T]he Court must carefully scrutinize the settlement and the circumstances in which it was reached, if only to ensure that ‘the interest of [the] plaintiffs' counsel in counsel's own compensation did not adversely affect the extent of the relief counsel procured for the clients.' ” Id. (quoting Cisek v. Nat'l Surface Cleaning, Inc., 954 F.Supp. 110, 110-11 (S.D.N.Y. 1997)). Further, the Court has “‘wide discretion in assessing the weight and applicability' of the relevant factors.” Vassalle v. Midland Funding LLC, 708 F.3d 747, 754 (6th Cir. 2013) (quoting Granada Invs., Inc. v. DWG Corp., 962 F.2d 1203, 1205-06 (6th Cir. 1992)).
The settlement comprises of a full class-wide release of claims and dismissal of the action in exchange for $12,000,000 for settlement class members after deductions of fees, expenses, and taxes. The agreement provides for recovery of approximately $1.95 per allegedly damaged share before the deduction of attorney's fees and expenses, and $1.34 per allegedly damaged share after deductions for awarded attorney's fees and expenses. (ECF No. 42-2 at Pg ID 1088-89.) Plaintiff notes that the Claims Administrator mailed the Notice Packets to class members, and to date, approximately 66,000 copies were mailed. The notice was published in The Wall Street Journal and transmitted over the internet on PR Newswire. Originally, potential claimants had until December 2, 2022, to submit a claim. However, at the fairness hearing, parties represented to the Court that the Claims Administrator will allow late claims to be submitted for a limited timeframe. As of December 7, 2022, 25,752 claims have been filed, which is a return rate of 39%.
According to the Plan of Allocation, the settlement proceeds will be distributed by the Claims Administrator, where claimants will submit-by mail or online through a settlement website-the Claims Form. The Claims Administrator then determines each claimants' eligibility and determines each claimants' pro rata portion of the Net Settlement Fund. Parties represent to the Court that this method will also be used to calculate Lead Plaintiff's claims as well. Further, claimants will be notified if any defects arise regarding their claims or regarding conditions of ineligibility and will be provided an opportunity to contest the rejection of their claims.
Once the claims process is ultimately completed, payments will be issued to those claimants who are approved. If there are any unclaimed funds after the initial distribution by the Claims Administrator, there will be reallocations among authorized claimants who have cashed their checks, which “may occur on multiple occasions.” (ECF No. 42-2 at Pg ID 1042.) Finally, the Settlement provides that any de minimis balance remaining, after any outstanding Notice and administrative expenses, will be contributed to Consumer...
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