The Sixth Circuit recently vacated a class action settlement that had resolved no fewer than three separate class lawsuits involving more than 1.4 million class members across the country. Though the settlement resembled many that have sailed through fairness hearings before, the Sixth Circuit took exception to several aspects of the agreement and made new law in the process.
Vassalle v. Midland Funding LLC, __ F3d __, 2013 U.S. App. LEXIS 3914 (6th Cir. February 26, 2013) was one of three separate cases involving a “debt buyer” that had engaged in “robo-signing” in connection with its debt collection lawsuits.
Midland Funding, an affiliate of a billion-dollar publicly traded entity called Encore Capital Group, is not a traditional lender. Instead, it purchases debt from the original lenders who, for various reasons, write off the accounts and sell them at a discount to Midland. Midland then sues on the debt, but does not possess the original contracts or any of the underlying account documentation to support the obligation.
Midland was accused of filing debt collection actions based on affidavits signed by employees claiming personal knowledge of the debts, when, in fact, they did not possess any such knowledge. Id. at *4. It turned out that Midland’s employees were producing between 200 and 400 of these computer-generated affidavits each day. Id.
The first case began as a debt collection action filed in an Ohio municipal court. In two more cases, the customers filed class actions as plaintiffs — one in state court and one in federal court.
The class action claims included violations of the Fair Debt Collection Practices Act (FDCPA), as well as other state law claims. The gist of their argument was that Midland engaged in deceptive acts when it tried to collect debts based on misleading affidavits. Indeed, since Midland was not the original lender, it could not have possessed personal knowledge regarding the bona fides of the underlying debt.
In the oldest of the three cases, Midland Funding v. Brent, the district court eventually ruled that the robo-signed affidavits violated the FDCPA, certified a nationwide class and denied the defendant’s request for actual damages under the FDCPA. The court must have thought that the defendant really did owe the money after all, and thus found that there were no actual damages — just claims for statutory damages and attorneys’ fees. Id. at *4-5.
