Vassalle v. Midland Funding LLC

• Decision Date: 19 April 2013
• Docket Number: Nos. 11–3814,11–4021.,11–4019,11–3961,11–4016,s. 11–3814
• Citation: 708 F.3d 747
• Parties: Martha VASSALLE; Jerome Johnson; Hope Franklin; Andrea Brent, Plaintiffs–Appellees, Robert Clawson, Christopher Guest, and Manuela Rivera (11–3961); Kelli Gray (11–4016); Ladon Herring, Gilbert James, and Ann Rubio (11–4019), Objectors–Appellants, Elaine Pelzer (11–3814 and 11–4021), Intervenor–Appellant, v. MIDLAND FUNDING LLC; Midland Credit Management, Inc.; Encore Capital Group, Inc., Defendants–Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

708 F.3d 747

Martha VASSALLE; Jerome Johnson; Hope Franklin; Andrea Brent, Plaintiffs–Appellees,Robert Clawson, Christopher Guest, and Manuela Rivera (11–3961); Kelli Gray (11–4016); Ladon Herring, Gilbert James, and Ann Rubio (11–4019), Objectors–Appellants,Elaine Pelzer (11–3814 and 11–4021), Intervenor–Appellant,

v.MIDLAND FUNDING LLC; Midland Credit Management, Inc.; Encore Capital Group, Inc., Defendants–Appellees.

Nos. 11–3814, 11–3961, 11–4016, 11–4019, 11–4021.

United States Court of Appeals, Sixth Circuit.

Argued: Oct. 2, 2012.

Decided and Filed: Feb. 26, 2013.

Rehearing and Rehearing En Banc^* Denied April 19, 2013.

ARGUED:Ian B. Lyngklip, Lyngklip & Associates Consumer Law Center PLC, Southfield, Michigan, for Appellant in 11–3814 and 11–4021. Charles Delbaum, The National Consumer Law Center, Boston, Massachusetts, for Appellants in 11–3961 and 11–4019. Michael D. Kinkley, Michael D. Kinkley, P.S., Spokane, Washington, for Appellant in 11–4016. Dennis E. Murray, Sr., Murray & Murray Co., L.P.A., Sandusky, Ohio, for Plaintiffs–Appellees. Richard L. Stone, Jenner & Block LLP, Los Angeles, California, for Defendants–Appellees. ON BRIEF:Ian B. Lyngklip, Lyngklip & Associates Consumer Law Center PLC, Southfield, Michigan, for Appellant in 11–3814 and 11–4021. Charles Delbaum, The National Consumer Law Center, Boston, Massachusetts, David E. Birkhaeuser, Bramson Plutzik Mahler & Birkhaeuser, LLP, Walnut Creek, California, Adam S. Nightingale, Connelly, Jackson & Collier LLP, Toledo, Ohio, Carolyn E. Coffey, MFY Legal Services, Inc., New York, New York, Matthew A. Dooley, McGlamery & Loughman Co. LPA, Sheffield Village, Ohio, for Appellants in 11–3961 and 11–4019. Michael D. Kinkley, Scott M. Kinkley, Michael D. Kinkley, P. S., Spokane, Washington, for Appellant in 11–4016. Dennis E. Murray, Sr., Donna J. Evans, Murray & Murray Co., L.P.A., Sandusky, Ohio, for Plaintiffs–Appellees. Richard L. Stone, Amy M. Gallegos, Jenner & Block LLP, Los Angeles, California, Theodore W. Seitz, Dykema Gossett PLLC, Lansing, Michigan, for Defendants–Appellees. Kenneth W. Zeller, AARP Foundation Litigation, Washington, D.C., Karuna B. Patel, Center for Responsible Lending, Washington, D.C., for Amici Curiae.

Before: MOORE and COLE, Circuit Judges; and ROSE, District Judge. ^**

OPINION

COLE, Circuit Judge.

Midland Funding LLC, Midland Credit Management, Inc., and Encore Capital Group, Inc., the defendants-appellees, along with four plaintiffs-appellees, Andrea Brent, Martha Vassalle, Jerome Johnson, and Hope Franklin, sought approval in district court of a nationwide class settlement that settled three related lawsuits. The district court certified the class and approved the settlement. Eight objectors-appellants objected to the settlement, arguing that the settlement was unfair, unreasonable, and inadequate, that the district court abused its discretion in certifying the nationwide settlement class, and that the notice to prospective class members did not satisfy due process. For the following reasons, we REVERSE the district court's order approving the settlement, VACATE the judgment certifying the nationwide settlement class and the award of attorney fees, and REMAND for further proceedings consistent with this opinion.

I.

At issue in this case is a nationwide class settlement of three class-action lawsuits arising from similar factual predicates. In the oldest of the three, Midland Funding v. Brent, Midland Funding LLC (“Midland Funding”) filed a debt-collection action in April of 2008 against Andrea Brent in the Municipal Court of Sandusky, Ohio. An affidavit signed by an employee of Midland Credit Management, Inc. (“MCM”) was attached to the complaint. The affiant claimed personal knowledge that Brent owed a debt of over $4,000 to Midland Funding. In response, Brent brought a class-action counterclaim against Midland Funding and MCM (collectively, “Midland”), alleging violations of the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. §§ 1692–1692p, and state common law. The counterclaim alleged that MCM employees routinely signed form affidavits, such as the one attached to the complaint filed by Midland Funding against Brent, without personal knowledge of the facts asserted. Brent was removed to the Northern District of Ohio on the basis of federal question jurisdiction in June 2008. Following extensive discovery, class counsel filed an Amended Counterclaim Complaint on December 1, 2008, adding a state statutory claim.

On August 11, 2009, the district court issued a self-described “landmark ruling,” holding that “robo-signing” affidavits in debt-collection actions violates the FDCPA. The court found the affidavit to be false and misleading under the FDCPA due to the false attestation of personal knowledge. As it turns out, Midland employees had been signing between 200 and 400 computer-generated affidavits per day for use in debt-collection actions, without personal knowledge of the accounts. The court, however, denied declaratory and injunctive relief under the FDCPA.

After a failed attempt at mediation, the district court issued another opinion on November 4, 2010, granting Brent's motion for certification of a class whose members Midland had sued in Ohio courts using false affidavits. The court also granted Midland's motion for partial summary judgment, rejecting Brent's claims for actual damages under the FDCPA and thereby limiting both her and other similarly-situated debtors to seeking recovery of statutory damages and attorney fees.

While the Brent litigation was pending, class plaintiffs brought suit in the other two class actions settled under the settlement agreement. In December of 2009, Hope Franklin and Thomas Hyder brought the Franklin v. Midland Funding action in Erie County, Ohio Common Pleas Court, alleging common-law misrepresentation. The Franklin action was removed to the Northern District of Ohio. In January of 2011, Martha Vassalle and Jerome Johnson brought the last of the three class actions, Vassalle v. Midland Funding, in the Northern District of Ohio. The Vassalle suit alleged common-law claims of fraudulent misrepresentation, negligence, and unjust enrichment.

Midland filed a motion to dismiss the Franklin action, which the district court granted. Plaintiffs in Franklin then appealed to this Court. After the appeal, we granted the motion of the parties, on May 27, 2011, pursuant to Sixth Circuit Rule 12.1, to remand the case to the district court. That same day, the district court approved the parties' joint motion “to preliminarily approve their Class Settlement Agreement, to authorize class notice, for an order enjoining parallel litigation, and to schedule a Fairness Hearing on the class settlement.”

After two weeks of settlement conferences, the parties in the Brent, Franklin, and Vassalle actions finally reached an agreement and presented it to the court on March 9, 2011. In the settlement, the parties stipulated to the certification of a class that included “[a]ll natural persons” sued by Midland between January 1, 2005, and the date upon which the court would enter preliminary approval of the class action settlement “in any debt collection lawsuit in any court ... where an affidavit attesting to facts about the underlying debt was used by Midland in connection with the debt collection lawsuit.”

The settlement provided for both monetary and injunctive relief. Midland agreed to pay $5.2 million into a common fund for the benefit of the class. From this fund, class counsel would receive attorney fees of no more than $1.5 million, and the costs of administration. From the remainder of the fund, eligible class members who timely returned a claim form would receive payments of $10.00 each. In fact, however, the response rate was such that each class member would receive $17.38. In addition, the four named plaintiffs were to receive $8,000 collectively.

Under the injunctive portion of the settlement, Midland agreed to “create and implement written procedures for the generation and use of affidavits in debt collection lawsuits in order to prevent the use of affidavits where the affiant lacks personal knowledge of the facts set forth in the affidavit.” A retired federal judge was appointed to monitor Midland's compliance with the injunction, which was to last one year.

The settlement also included a classwide release, which provided that each class member who did not opt out would release Midland and its attorneys “from all causes of action ... which the class now has ... against the Released Parties, arising out of or relating to the Released Parties' use of affidavits in debt collection lawsuits.” The named plaintiffs granted Midland a broader release of “all causes of action.” Midland agreed to release the debts owed by the named plaintiffs, but reserved the right to continue attempting to collect debts owed by the unnamed class members.

The court granted preliminary approval of the settlement on March 11, 2011. Out of a class that included approximately 1.4 million members, over 133,000 class members, or 9.2% of the class, filed claims, while 4,262, or about 0.3%, opted out, and 61, or about 0.004%, filed objections.

On May 17, 2011, the district court granted a motion to dismiss the Brent action for lack of subject matter jurisdiction. The district court found that it lacked jurisdiction because the federal question that formed the basis of Brent's claims was found in a counterclaim, not in the original complaint filed by Midland. The district court remanded the Brent case to state court, and the state court dismissed Midland's claim against Brent and ordered realignment of the parties. Brent then filed an amended complaint, and the action was again removed to the district court on June 29, 2011.

On June 1, 2011, class member Elaine Pelzer moved to intervene in the class action for the purpose of conducting discovery regarding the fairness of the proposed...