Opinion
[Copyrighted Material Omitted]
Brian L. Bromberg, Bromberg Law Office, P.C., New York, NY, Daniel A. Edelman, Edelman Combs Latturner & Goodwin, LLC, Chicago, IL, Michael Fuller, Olsen Daines PC, Portland, OR, Kelly Donovan Jones, Kelly D. Jones, Attorney at Law, Portland, OR, Karen Lynn Kellett, Kellett & Bartholow PLLC, Dallas, TX, David Joseph Philipps, Mary Elizabeth Philipps, Philipps & Philipps, Ltd., Palos Hills, IL, Mark Leon Vavreck, Gonko & Vavreck, PLLC, Minneapolis, MN, for Intervenors.
David Neal McDevitt, Michael Rolland, Russell S. Thompson, IV, Thompson Consumer Law Group, PLLC, Mesa, AZ, for plaintiff (Ross).
Robbie Malone, Robbie Malone, PLLC, Dallas, TX, for Defendants.
ORDER
PHILIP A. BRIMMER, United States District Judge.
This matter is before the Court on the parties’ Joint Motion for Conditional Class Certification and Preliminary Approval of Class Settlement [Docket No. 56] and the motions to intervene filed by Christine Parmelee [Docket No. 62], Tamara Alexander [Docket No. 63], Jeremy Estrella [Docket No. 64], Theresa Matthews [Docket No. 72], Angel Cooley [Docket No. 78], Jeremy Vantuyl and Sue E. Gill [Docket No. 80], and Mary Jordan [Docket No. 87].
I. BACKGROUND
This case is a class action under the Fair Debt Collection Practices Act (" FDCPA" ), 15 U.S.C. § § 1692 et seq., alleging that defendants sent deceptive letters seeking to collect debts after the statute of limitations for those debts had expired. Docket No. 56 at 4-5. Plaintiff initially sought to bring claims on behalf of a class limited to " persons in the State of Colorado" who received collection letters from defendant Convergent Outsourcing, Inc. (" Convergent" ). Docket No. 1 at 7, ¶ 51. The parties’ joint motion for class certification and preliminary approval of settlement, however, seeks certification of a nationwide class of more than 3.7 million individuals who received any letter from Convergent using the term " settlement offer" in relation to a time-barred debt. Docket No. 56 at 8.
The complaint alleged a class of:
The proposed class is defined as:
Under the FDCPA, an individual plaintiff can recover up to $1,000 in statutory damages in addition to actual damages sustained, costs, and attorney’s fees. 15 U.S.C. § 1692k(a). However, for class actions, statutory damages are capped at 1% of the debt collector’s net worth or $500,000, whichever is less. 15 U.S.C. § 1692k(a)(2)(B). The proposed settlement is structured as a " claims made" settlement in which postcard notice is sent to all class members, who must then return the postcard within a specified period to make a claim and potentially receive settlement funds. Docket No 56-1 at 3. However, class members who do not opt out have their claims against defendants released. Id. at 4. The proposed settlement agreement provides Convergent will pay the per-suit maximum of $500,000 in statutory damages to be divided among participating class members as well as a $3,000 payment to plaintiff and payment of plaintiff’s litigation costs, plaintiff’s attorney’s fees, and the costs of notice to the class and the distribution of settlement funds. Docket No. 56 at 3-4, 14; Docket No 56-1 at 12-13. Additionally, the proposed settlement provides $500,000 for actual damages to be distributed among participating class members who made payments on time-barred debt. Docket No. 56 at 3; Docket No. 56-1 at 11-12, ¶¶ 10.B. If the claims of class members who made payments exceed $500,000, then class members making such claims will receive payments that are proportionately reduced. For example, if class members who return claims paid a total of $750,000 on time-barred debt, each such class member would receive two-thirds of the amount he or she paid. See Docket No. 56-1 at 11-12, ¶¶ 10.B.
The proposed intervenors are named plaintiffs in similar class actions pending against Convergent in other courts throughout the country. The proposed intervenors seek intervention as of right pursuant to Fed.R.Civ.P. 24(a)(2) and within the court’s discretion pursuant to Fed.R.Civ.P. 24(b)(1)(B).
The proposed intervenors are plaintiffs in Parmelee v. Convergent Outsourcing, Inc., No. 6:17-cv-06039-CJS-JWF (W.D.N.Y.), Docket No. 1 at 7, ¶ 51 (alleged class of individuals with New York addresses with debt outside of the applicable statute of limitations), Vantuyl v. Convergent Outsourcing, Inc. et al., No. 5:16-cv-00812-D (W.D. Okla.), Docket No. 21 at 2, ¶ 3 (proposed class of persons in the state of Oklahoma who allegedly owed time-barred debt for a Providian Bank credit card), Gill v. Convergent Outsourcing, Inc. et al., No. 2:16-cv-01035-MHW-EPD (S.D. Ohio), Docket No. 22 at 3, ¶ 5 (proposed class of persons in the State of Ohio who allegedly owed a time-barred debt to First Bank of Delaware), Alexander v. Convergent Outsourcing, Inc., No. 4:16-03318 (S.D. Tex.), Docket No. 1 at 6, ¶ 31 (alleged class of individuals in Texas), Estrella v. Convergent Outsourcing, Inc., No. 3:17-cv-00117-BR (D. Or.), Docket No. 1 at 14, ¶ 51 (alleged class of consumers with Oregon addressees who allegedly owed a time-barred debt to National Collegiate Student Loan Trust 2006-1), Matthews v. Convergent Outsourcing, Inc., No. 16-cv-03924-JNE-BRT (D. Minn.), Docket No. 1 at 3, ¶ 1 (alleged class of consumers in Minnesota who received letters similar to the plaintiff), Cooley v. Convergent Outsourcing, Inc. et al., No. 1:17-cv-03121 (N.D.Ill.), Docket No. 1 at 7, ¶ 46 (alleged calls of individuals with Illinois addresses sent letters regarding a time-barred credit card debt), Jordan v. Convergent Outsourcing, Inc. et al., No. 16-cv-04566 (N.D.Ill.), Docket No. 1 at 4, ¶¶ 27-28 (alleged nationwide class of individuals sent a letter by Convergent).
II. MOTION FOR PRELIMINARY APPROVAL OF SETTLEMENT
Approval of a class action settlement takes place in two stages. In the first stage, the court preliminarily certifies a settlement class, preliminarily approves the settlement agreement, and authorizes that notice be given to the class so that interested class members may object to the fairness of the settlement or opt out of the settlement. See In re Motor Fuel Temperature Sales Practices Litig., 258 F.R.D. 671, 675 (D. Kan. 2009). In the second stage, after notice is given to the putative class, the court holds a fairness hearing at which it will address the fairness, reasonableness, or adequacy of the settlement terms. Fed.R.Civ.P. 23(e)(2); see Rutter & Wilbanks Corp. v. Shell Oil Co., 314 F.3d 1180, 1188 (10th Cir. 2002).
" Preliminary approval of a class action settlement, in contrast to final approval, is at most a determination that there is ... ‘probable cause’ to submit the proposal to class members and hold a full-scale hearing as to its fairness." Davis v. J.P. Morgan Chase & Co., 775 F.Supp.2d 601, 607 (W.D.N.Y. 2011). A proposed settlement of a class action should therefore be preliminarily approved where it " appears to be the product of serious, informed, non-collusive negotiations, has no obvious deficiencies, [and] does not improperly grant preferential treatment to class representatives." See In re Motor Fuel Temperature Sales Practices Litig., 286 F.R.D. 488, 492 (D. Kan. 2012). " The standards for preliminary approval of a class settlement are not as stringent as those applied for final approval." Id.
Upon review of the proposed class settlement, the Court denies preliminary approval. The arguments raised by the proposed intervenors raise questions about whether the settlement is " fair, reasonable, and adequate," Fed.R.Civ.P. 23(e)(2), and whether the settlement was fairly negotiated. See Lucas v. Kmart Corp., 234 F.R.D. 688, 693 (D. Colo. 2006).
A. Statutory Damages
Under the proposed settlement agreement, a total of $500,000 in statutory damages would be distributed to those class members who returned a postcard indicating their participation in the settlement. If all class members returned the postcard, the payout would be less than $0.14 each. However, the parties estimate that only 5% of the class would return the postcard. If so, the payout to each would be $2.70.
The parties provide no support for their 5% estimate. The proposed intervenors claim that the parties underestimate the likely participation rate because, " historically, 10% is a typical participation rate for FDCPA class actions." Docket No. 94 at 7-8 (citing Gallego v. Northland Group, 814 F.3d 123, 129-130 (2d Cir. 2016)). At this time, the Court has not been given sufficient information to determine which estimate is more reasonable.
The Court also has concerns about the expansion of the class. The use of a nationwide settlement substantially reduces Convergent’s exposure to both statutory damages and actual damages. Because the limit on statutory damages in a class action is a per-suit cap, a nationwide settlement that effectively binds the plaintiffs in the other lawsuits would reduce Convergent’s potential statutory damages exposure by millions of dollars. The corollary to Convergent having less exposure is that class members will potentially recover less per capita. In those pending cases where the proposed classes contain less than 500 members, each class member could potentially recover up to the full $1,000 in statutory damages. 15 U.S.C. § 1692k(a)(2)(B)(i); see also Docket No. 94 at 8. This contrasts sharply with the $2.70 per class member in statutory damages that the parties anticipate.
Some of the other pending class actions involve less that 500 class members, see Docket No. 94 at 8, such that the maximum statutory damages in those cases is less than the $500,000 cap. The parties argue that the per-suit cap in the FDCPA should be applied as a cap on a series of class actions, similar to the limitation under the Truth in Lending Act, 15 U.S.C. § 1640(a)(2)(B). Docket No. 81 at 5. But the parties do not cite any cases that have interpreted the language of 15 U.S.C. § 1692k(a)(2)(B), which refers to " a class action," as they propose.
B. Actual Damages
Because of the broad release of claims in the proposed settlement, Convergent’s exposure for actual damages is effectively capped at $500,000, with the limited exception of class members who opt out. The parties acknowledge that Convergent received more than $15 million in payments based on time-barred debt from class members. Docket No. 74 at 7. While it may be appropriate to reduce the amount of class members’ recovery of actual damages in light of legal uncertainties that class members in various jurisdictions are exposed to, the parties have not explained why it is appropriate to cap the total recovery of participating class members at less than one-thirtieth the amount of payments Convergent received on time-barred debt. Notably, the proposed settlement does not provide for individualized notice to class members who made payments and may be eligible for actual damages recovery, see Docket No. 56-1 at 6-7, ¶ 6.C.i, even though Convergent apparently has a database of payments made by class members. Docket No. 56-2 at 4, ¶¶ 20-22. The parties need to provide further information on the expected response rate and the fairness of the proposed recovery before resubmitting a proposed settlement.
The parties note that the proposed intervenors and other class members will have the opportunity to opt out or oppose the settlement. Docket No. 74 at 5-6. Courts have recognized that the ability to opt out and pursue individual relief is of limited viability where, as here, most claims are small. In re Gen. Motors Corp. Pick-Up Truck Fuel Tank Prod. Liab. Litig., 55 F.3d 768, 809 (3d Cir. 1995). In any event, the " right of parties to opt out does not relieve the court of its duty to safeguard the interests of the class." Id.
C. Reverse Auction Red Flag
Moreover, the nature of the proposed settlement raises a red flag as to whether it is the product of a so-called " reverse auction." See Rutter & Wilbanks Corp., 314 F.3d at 1189. In a reverse auction, " a defendant, seeing competing class cases, cherrypicks the attorneys willing to accept the lowest class recovery, in exchange for enhanced fees." Martin v. Cargill, Inc., 295 F.R.D. 380, 388 (D. Minn. 2013) (citing Manual for Complex Litigation (Fourth) § 21.61 (2004)). As noted above, the proposed settlement agreement significantly broadens the class that plaintiff initially sought to represent, thereby diluting the original Colorado class members’ potential recovery, and provides for the release of similar claims in numerous pending class actions, all to defendants’ benefit. Compare Docket No. 1 at 7, ¶ 51 (" All persons in the State of Colorado" ) with Docket No. 56-1 at 20, ¶ 4 (" All persons in the United States" ); Docket No. 56-1 at 4, ¶ I (extensive release of claims). This is not to say that the proposed intervenors have provided any evidence that plaintiff’s counsel is the lowest bidder in a reverse auction. None of the proposed intervenors claim to have been solicited by defendants in an attempt to pick them off. Moreover, as the parties point out, Docket No. 56 at 13, plaintiff’s counsel successfully represented the plaintiff in the appeal of a similar action in Daugherty v. Convergent Outsourcing, Inc., 836 F.3d 507 (5th Cir. 2016). In Daugherty, the Fifth Circuit joined the Sixth and Seventh Circuits in holding that a " collection letter seeking payment on a time-barred debt (without disclosing its unenforceability) but offering a ‘settlement’ and inviting partial payment (without disclosing the possible pitfalls) could constitute a violation of the FDCPA." Id. at 513. This is the same legal theory that forms the basis of plaintiff’s claims in this case. Nonetheless, given the dramatic effect that expansion of the proposed class has on Convergent’s liability exposure nationwide, the Court needs more information on the parties’ course of conduct in reaching the proposed settlement. Because the parties have not shown that the proposed settlement agreement warrants preliminary approval, the Court will deny the parties’ motion without prejudice.
The parties raise another issue that warrants further briefing. The parties claim that one factor arguing in favor of settlement is that there is a circuit split regarding whether debt collection letters offering to " settle" time-barred debts are deceptive. See Docket No. 56 at 16 (citing Daugherty, 836 F.3d at 511, Buchanan v. Northland Grp., Inc., 776 F.3d 393, 397 (6th Cir. 2015), McMahon v. LVNV Funding, LLC, 744 F.3d 1010, 1020 (7th Cir. 2014), Huertas v. Galaxy Asset Management, 641 F.3d 28 (3d Cir. 2011), and Freyermuth v. Credit Bureau Services, Inc., 248 F.3d 767 (8th Cir. 2001)). The Tenth Circuit has not ruled on this issue. While it is true that the circuit split creates uncertainty which a settlement agreement may properly take into account in negotiating a fair resolution of the dispute, certain plaintiffs in competing class actions reside in circuits that have determined letters offering to settle time-barred debts can be deceptive. Those class members would be subject to less legal uncertainty and, likely, have more valuable claims. The parties do not discuss how the Court should consider approval of a class that would bind certain class members who have a viable alternative mechanism for legal recovery.
III. MOTIONS TO INTERVENE
Rule 24 provides, in pertinent part, that a " court must permit anyone to intervene who ... claims an interest relating to the property or transaction that is the subject of the action, and is so situated that disposing of the action may as a practical matter impair or impede the movant’s ability to protect its interest, unless existing parties adequately represent that interest," Fed.R.Civ.P. 24(a)(2), and that a " court may permit anyone to intervene who ... has a claim or defense that shares with the main action a common question of law or fact." Fed.R.Civ.P. 24(b)(1)(B). In regard to intervention as of right pursuant to Rule 24(a)(2), the Tenth Circuit has " summarized the requirements ... as: (1) the application is timely; (2) the applicant claims an interest relating to the property or transaction which is the subject of the action; (3) the applicant’s interest may as a practical matter be impaired or impeded; and (4) the applicant’s interest is not adequately represented by existing parties." United States v. Albert Inv. Co., Inc., 585 F.3d 1386, 1391 (10th Cir. 2009) (citations, quotation marks, and alteration omitted). Permissive intervention pursuant to Rule 24(b)(1)(B) falls within the Court’s discretion. City of Stilwell, Okl. v. Ozarks Rural Elec. Coop. Corp., 79 F.3d 1038, 1043 (10th Cir. 1996).
The Court set a deadline for motions to intervene and the parties do not argue that the motions to intervene are untimely. Docket No. 83; see also, e.g., Docket Nos. 74, 79.
With regard to intervention by right, the proposed intervenors claim that they have " an interest relating to the property or transaction that is the subject of the action, and is so situated that disposing of the action may as a practical matter impair or impede the movant’s ability to protect its interest," Fed.R.Civ.P. 24(a)(2), because the settlement would result in " little to no actual recovery" and the settlement would impair their ability to pursue meaningful recovery. Docket No. 62 at 2. The parties admit that, if the proposed intervenors do not opt out, the proposed intervenors would be bound by the terms of the settlement agreement and it would affect the proposed intervenors’ potential recovery. Docket No. 74 at 2-3. Therefore, the Court finds that the proposed intervenors have shown that they have an interest in the matters at issue and that disposing of the action without their intervention may impair their ability to protect their interests. New Mexico Off-Highway Vehicle Alliance v. U.S. Forest Service, 540 Fed.Appx. 877, 880 (10th Cir. 2013) (unpublished) (holding that an intervening environmental group met the " minimal burden" of showing potential impairment of its interest).
The Court also finds that the proposed intervenors have made the " minimal showing" that representation of their interests " may be inadequate." Tri-State Generation and Transmission Ass’n, Inc. v. New Mexico Public Regulation Comm’n, 787 F.3d 1068, 1072 (10th Cir. 2015) (internal quotation marks and emphasis omitted). As discussed above, the proposed settlement agreement significantly dilutes original Colorado class members’ potential recovery. See Crawford v. Equifax Payment Servs., Inc., 201 F.3d 877, 881 (7th Cir. 2000) (reversing an order denying intervention where the intervenors were plaintiffs in class actions pending before a different judge).
With regard to permissive intervention, the Court will allow the proposed intervenors to intervene under Fed.R.Civ.P. 24(b)(1)(B) because they each have " a claim or defense that shares with the main action a common question of law or fact." On review of the record, and in light of the Court’s ruling on the parties’ motion for preliminary approval of the proposed settlement agreement, the Court finds that the proposed intervenors’ intervention will not " unduly delay or prejudice the adjudication of the original parties’ rights." Tri-State Generation and Transmission Ass’n, Inc., 787 F.3d at 1074 (quoting Fed.R.Civ.P. 24(b)(3)). Therefore, the Court will grant the motions to intervene.
IV. DISCOVERY
In conducting a class action, the Court may " impose conditions on the representative parties or on intervenors." Fed.R.Civ.P. 23(d)(1)(C); see also 7B Charles Alan Wright & Arthur R. Miller, Fed. Prac. & Proc. § 1794 (3d ed. 1998) (" [T]he rule grants the court a wide range of discretion and authority to manage class actions." ). The Court has identified various types of information that the Court needs to properly consider the fairness of the proposed settlement agreement if the parties resubmit the agreement for preliminary approval. In order for the intervenors and the Court to evaluate whether there has been a reverse auction, the parties shall produce to intervenors discovery regarding meetings and communications between the parties’ attorneys or representatives regarding any proposed settlement. The Court otherwise bars intervenors from seeking discovery in this action without leave of the Court.
V. CONCLUSION
Therefore, it is
ORDERED that the parties’ Joint Motion for Conditional Class Certification and Preliminary Approval of Class Settlement [Docket No. 56] is DENIED without prejudice. It is further
ORDERED that Christine Parmelee’s Amended Motion to Intervene [Docket No. 62] is GRANTED. It is further
ORDERED that Tamara Alexander’s Motion to Intervene [Docket No. 63] is GRANTED. It is further
ORDERED that Jeremy Estrella’s Motion to Intervene [Docket No. 64] is GRANTED. It is further
ORDERED that Theresa Matthews [sic] Amended Motion to Intervene [Docket No. 72] is GRANTED. It is further
ORDERED that the Motion of Angel Cooley to Intervene [Docket No. 78] is GRANTED. It is further
ORDERED that the Joint Motion of Jeremy Vantuyl and Sue E. Gill to Intervene [Docket No. 80] is GRANTED. It is further
ORDERED that Mary Jordan’s Motion to Intervene [Docket No. 87] is GRANTED. It is further ORDERED that, thirty days before submission of a proposed settlement agreement to the Court, the parties shall produce to intervenors all communications, including but not limited to letters, emails, meeting notes, and notes or other evidence of telephone calls between the parties’ attorneys or representatives regarding any proposed settlement as well as the dates of such communications or meetings and a list of the names of the participants in any meetings or telephone calls. It is further
ORDERED that any renewed motion for preliminary approval of the parties’ settlement agreement shall be filed within sixty days of the date of this order.
All persons in the State of Colorado to whom Convergent sent, within one year before the date of this complaint and in connection with the collection of a debt, a collection letter based upon the Template upon which no suit could be filed due to it being outside the applicable statute-of-limitations.
Docket No. 1 at 7, ¶ 51.
All persons in the United States to whom Convergent sent, within one year before the filing date of the original complaint in this action, a collection letter in connection with the collection of a time-barred debt that uses the term " settlement offer," proposes a partial payment on the debt, or requires the consumer to contact it within 45 days to obtain a discount on the debt.
Docket No. 56 at 8.