In a decision dated February 26, 2013, the Sixth Circuit Court
of Appeals in the case of
Vassalle v. Midland Funding, ___ F.3d ___ (6th Cir.
2013), reversed the District Court's certification of
a settlement class in a case alleging
"robo-signing." The plaintiffs asserted claims
under the Fair Debt Collection Practices Act ("FDCPA")
with respect to documents submitted by the defendant in support of
proceedings to collect defaulted consumer loan obligations.
The plaintiffs alleged that these documents were
"robo-signed" by persons without adequate personal
knowledge or other support for the information contained in the
documents. These types of allegations gained national
attention in connection with residential mortgage foreclosures, and
a number of class actions have been filed against mortgage lenders
and servicers based on such alleged practices including within the
First
Circuit.
The Sixth Circuit reversed certification of the settlement class for a number of reasons, including the markedly preferential treatment granted under the proposed settlement to the named plaintiffs, whom the Court explicitly found under Rule 23(a)(4) to be inadequate representatives of the unnamed members of the class receiving less favorable treatment. The Court also found the class notice defective, and rejected the argument that the ability of unnamed class members to opt out of the settlement cured any of the defects.
Most notably, however, the Sixth Circuit disagreed with the District Court's finding that the proposed settlement class satisfied the superiority requirement under Rule 23(b)(3). The Court of Appeals found that although "the majority" of the relevant considerations "weigh in favor of finding the superiority factor was satisfied," "[t]here are, however, two considerations weighing against such a finding."
First, unnamed class members had an interest in individually controlling the defense of Midland's state court judgments against them. Second, the class members could have collected damages under state law claims that would exceed the value of monetary relief in this settlement. These two considerations tilt the scales in favor of finding that the class action here was not the superior method of resolving the controversy.
This analysis of the superiority requirement applies equally to
pending class actions alleging "robo-signing" in support
of judicial residential mortgage foreclosure proceedings,
regardless of whether certification is sought for purposes of
settlement or for trial. In such cases, the individual
plaintiffs have state law remedies available to them in the
original judicial foreclosure actions in which the
"robo-signed" documents were allegedly submitted that are
fully adequate to address such practices where they occur.
Moreover, denial of class-wide relief in favor of individual
remedies prevents potential "double dipping" by
plaintiffs who may have already pursued relief on an individual
basis. As noted by the Sixth Circuit, putative class members
are better off pursuing individual relief in any event, and
class-wide relief in such cases is not superior as required for
certification of a class
under Rule 23(b)(3).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
