Interesting new FDCPA class action decision

by Brian Wolfman

Last Thursday, Judge Arthur Spatt, a federal district judge in Brooklyn, postponed a decision on final approval of a settlement in a Fair Debt Collection Practices Act (FDCPA) class action on the ground of inadequate notice. See Corpac v. Rubin & Rothman, 2013 WL 265318 (E.D.N.Y. Jan. 24, 2012). The plaintiff alleged that the defendant had sent written collection notices that falsely represented or implied that an attorney had meaningfully reviewed the plaintiff's account and was meaningfully involved with the decision to send the communication, in violation of the FDCPA. The proposed settlement would have paid $9,400 to an unnamed charitable organization (unnamed, at least, in the court's opinion) and $75,000 to plaintiff's counsel.

Three things about the decision seemed noteworthy to me.

First, as noted, the court refused to approve the settlement, at least for now, on the ground of inadequate notice. Applying the Second Circuit's decision in Hecht v. United Collection Bureau, 691 F.3d 18 (2012), Judge Spatt held that a one-time summary notice of the action in the New York Post violated the class members' due process rights. (I don't understand why the court did not hold that individual notice was required by Federal Rules of Civil Procedure 23(b)(3) and (c)(2).)

Second, the court disqualified defendant's counsel on the ground that he had a close personal relationship with, and frequently was co-counsel in FDCPA cases with, the plaintiff's counsel. Here are the key passages of the court's decision on that issue:

Here, as stated above, if the notice to the class members was valid and if the Court were to approve the settlement, there would be no reason to disqualify [defense counsel] Robert L. Arleo. His prior extensive business relationship with [plaintiff's counsel] Horn did not, in any manner, involve the prosecution or the proposed settlement of the case. The settlement was consummated between Horn and defendant's counsel Joseph A. Latona in March 2011. Arleo signed in as an attorney for the defendant on December 21, 2011. There is no evidence that attorney Arleo had anything to do with the settlement. However, that settlement has not yet been approved by the Court. The notice used by the parties has been held to be invalid. Now, the plaintiff's counsel must initiate a new proposed notice to the prospective class members. The result of such a more publicized notice is unknown. However, with reasonable certainty, a more publicized notice may bring in additional prospective class members and objectors. The potential class is large. Whether this new and much more publicized procedure will result in a settlement approved by the Court is also unknown. This means that if Robert Arleo remains as co-counsel for the defendant, he will have an opportunity to be in-volved in the future notice, possible objection hearings, settlement procedures, and a trial if necessary. In the Court's view this presents a future potential serious problem. *** In light of the intervening change in the posture of this case attributable to Hecht, there may be additional class action members, additional objectors and the chance of a revised class action settlement or even a trial. In view of these circumstances, the Court is well aware of its obligation to protect the class members and to make sure that the processes involved in this case are transparent to the class members and to the defendant. Balancing the right of a client to counsel of his or her choice against the enforcement of ethical rules and fair play, Robert Arleo should no longer be in this reactivated case.

Third, the plaintiff's counsel had alleged a "kickback" scheme in which non-profit organizations would receive fees for referring cases to objector's counsel. This allegation was not true, and plaintiff's counsel later admitted that it was not true and apologized to objector's counsel and to the court. The court decided not to refer the plaintiff's counsel to the chief judge for disciplinary action.