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

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.

  • Fred Vollrath

    I believe the FDCPA limits class action damages to $500,000 or 1% of the net worth of the compay–whichever is LESS. So, $20,000 out of $36,000 doesn’t look so bad.

    • Sam Glover

      Which is why they never should have brought it as a class in the first place.

  • dave

    so the consumer lawyer got 84 k did any consumers get anything? I didn’t know the usa today had a legal section,that paper is usually for business travelers

    • http://caveatemptorblog.com/find-consumer-bankruptcy-attorney/ Sam Glover

      No, the consumers did not get anything. The $20,000 award went to New Jersey Legal Aid.

  • http://toddmurraylaw.com Todd Murray

    Fair enough. Of course, we both have the invaluable benefit of hindsight. My aim isn’t to defend these guys, it’s just to point out that there may be more to this than we realize.

    • http://caveatemptorblog.com/find-consumer-bankruptcy-attorney/ Sam Glover

      You and I also have the invaluable benefit of not being the kind of consumer lawyers who would look at a settlement like this and say “hey, it’s obviously a terrible settlement, and we probably shouldn’t have sought class certification, knowing what we do, but let’s get paid anyway, and just to make sure nothing holds it up, let’s provide completely inadequate notice.”

  • http://toddmurraylaw.com Todd Murray

    Setting aside the low settlement amount, are you arguing that they should have instead brought one million individual FDCPA suits rather than certifying the class? With most of the potential plaintiffs unidentifiable?

    • http://caveatemptorblog.com/find-consumer-bankruptcy-attorney/ Sam Glover

      I’m saying that if even 21 plaintiffs eventually brought a lawsuit, it would have had a greater deterrent effect on Capital Management and greater benefit to the consumers involved. Out of a million, it’s not a stretch to assume that 21 or so would eventually talk to a lawyer.

      Also, Capital Management could easily identify the consumers involved. It knows who it called. It probably just didn’t want to risk it.

  • James

    What a crock. Sounds like the Plaintiff’s lawyers should have been hired by CMS. We have had similar settlements in Florida on insurance cases that were overturned.