Consumer Law

Class Action Attorneys Give Up Over $1 Billion in Claims for $20,000

By Sam Glover

http://flic.kr/p/7HQ5oB

Class action lawsuits are an extremely important tool, but the case of Seraji v. Capital Management Services is an example of a class action handled very badly. Capital Management Services is a debt collection agency that, according to the complaint, left—potentially—millions of voicemail messages that violated the Fair Debt Collection Practices Act. The messages violated the FDCPA because collectors for Capital Management did not identify the company or disclose that they were debt collectors collecting a debt.

Capital Mangement revealed that over 1 million consumers may have been affected. Since the FDCPA provides for statutory damages of up to $1,000, that means its potential liability was over $1 billion, plus attorney fees and costs. Knowing this, the plaintiffs’ attorneys should probably have declined to seek class certification. The FDCPA limits recovery in class actions to $500,000 or 1% of a debt collector’s net worth. For Capital Management, that meant the maximum recovery would be $36,000. For a million people. $36,000 is well below 1% of the potential damages. That’s basically just giving up and going home, as far as the consumers are concerned.

But the plaintiffs went ahead and agreed to accept just $20,000, anyway. They also agreed that the class would be an “opt-out class,” meaning class members would automatically be included in the class unless they affirmatively opted out. Notice was to be by publication in USA Today only. The class counsel told the court that the notice by publication in USA Today “provides the reader with sufficient information to determine whether he or she is a member of the class.” But it doesn’t, for two reasons.

First, less than 1% of American households subscribe to USA Today. Even fewer are likely to read the legal notices. So the attorneys and the court could be relatively certain that almost nobody would see the notice and find out about the class action and proposed settlement.

Second, the whole point of the lawsuit was that Capital Management’s collectors did not identify themselves. In other words, class members did not know who was calling them, and so—by definition—they did not know who they were. The notice in this case was worthless.

Well, not entirely worthless, class counsel Philip Stern and Robert Arleo took home $84,250 as their compensation for wiping out a billion dollars in consumers’ FDCPA claims. Call this one a big win for the bad guys.

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Full post as published by Caveat Emptor on November 18, 2010 (boomark / email).