FULL TEXT 6th Circuit Decision in Robo-Signing Vassalle v. Midland Funding

February 26, 2013

FULL TEXT Decision by 6th Circuit Court of Appeals 
Vassalle et al. v. Midland Funding LLC. et al. (6th Circuit, February 26, 2013)
analysis by Bill Singer

Defendants/Appellees: Midland Funding LLC, Midland Credit Management, Inc., and Encore Capital Group, Inc.; and Plaintiffs/Appellees: Andrea Brent, Martha Vassalle, Jerome Johnson, and Hope Franklin, won 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 as being unfair, unreasonable, and inadequate; and, accordingly, that the district court had abused its discretion in certifying the nationwide settlement class, and that the notice to prospective class members did not satisfy due process. 

On appeal, the 6th Circuit:
  • reversed the district court's order approving the settlement; 
  • vacated the judgment certifying the nationwide settlement class and the award of attorney fees;and 
  • remanded for further proceedings consistent with its Opinion.

This case involved allegations of so-called "Robo-signing."  Apparently, 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 parties in the Brent, Franklin, and Vassalle actions 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.

Short-Lived Landmark Ruling

On August 11, 2009, the district court issued a self-described "landmark ruling,” holding that "robo-signing" affidavits in debt-collection actions violates the Fair Debt Collection Practices Act ("FDCPA") 
The court found the affidavit to be false and misleading under the FDCPA due to the false attestation of personal knowledge. The court, however, denied declaratory and injunctive relief under the FDCPA.

On Appeal to The 6th Circuit

The Circuit enunciated a seven-point standard for determining whether a class action if fair, reasonable, and adequate:
  1. risk of fraud or collusion; 
  2. complexity, expense and likely duration of the litigation;
  3. amount of discovery engaged in by the parties; 
  4. likelihood of success on the merits; 
  5. opinions of class counsel and class representatives;
  6. reaction of absent class members; and
  7. public interest.
Preferential Treatment

In Vassalle, the Circuit found that the named plaintiffs receive "preferential treatment,"
while the relief provided to the unnamed class members is "perfunctory." Pointedly, here there were two benefits from the settlement that the unnamed class members do not receive:

First, the named plaintiffs receive the primary benefit of the settlement: the exoneration of debts owed to Midland. If the 1.44 million unnamed class members received this benefit, like Brent, they would be absolved of debts in the hundreds or even thousands of dollars. Instead, the settlement actually 
prevents the unnamed class members from using Midland's use of false affidavits against Midland in any other lawsuit, virtually assuring that Midland will be able to collect on these debts; and

Second, the named plaintiffs receive an $8,000 incentive payment to be split among them.

Perfunctory Relief

Finally, the 6th Circuit deemed the relief actually provided to the unnamed class members as, at best, perfunctory: 

First, provided they respond to the notice, the unnamed class members receive
$17.38; and

Second, the settlement provides for one year of injunctive relief, overseen by a retired federal judge, under which Midland is required to change its policies. 

The $17.38 payment was deemed de minimis, ; particularly so since many of the 1.44 million class members' debts are in the thousands or at least hundreds of dollars. 

The one-year injunction was deemed of little value for three reasons:
  1. It does not actually prohibit Midland from creating false affidavits; rather, it only requires Midland to change its policies and provides oversight of this process. 
  2. The injunction only lasts one year, after which Midland is free to resume its predatory practices should it choose to do so. 
  3. The injunction offers only prospective relief that likely does not benefit class members at all.