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Macy v. GC Services Ltd. Partnership

United States District Court, W.D. Kentucky, Louisville Division

December 6, 2019

WILBUR MACY and PAMELA J. STOWE, on behalf of themselves and others similarly situated, Plaintiffs,
v.
GC SERVICES LIMITED PARTNERSHIP, Defendants.

          MEMORANDUM OPINION AND ORDER

          David J. Hale, Judge United States District Court.

         Plaintiffs Wilbur Macy and Pamela J. Stowe, on behalf of themselves and others similarly situated, allege that Defendant GC Services Limited Partnership violated the Fair Debt Collection Practices Act by sending them debt-collection letters that did not accurately convey their rights under the Act. (Docket No. 1) The parties have reached a settlement to resolve this class action, and Plaintiffs seek preliminary approval of that settlement. (D.N. 74) The motion for preliminary approval is unopposed. (See id.) Nevertheless, the Court must examine the proposed settlement before notice of the proposal is sent to the class. See Fed.R.Civ.P. 23(e)(1)(B); Tenn. Ass'n of Health Maint. Orgs., Inc. v. Grier, 262 F.3d 559, 565 (6th Cir. 2001). The Court held a preliminary fairness hearing on November 8, 2019. (See D.N. 82) After careful consideration, the Court will preliminarily approve the parties' settlement.

         I.

         The Court previously certified the following class:

(1) All persons with a Kentucky or Nevada address, (2) to whom GC Services Limited Partnership mailed an initial communication that stated: (a) “if you do dispute all or any portion of this debt within 30 days of receiving this letter, we will obtain verification of the debt from our client and send it to you, ” and/or (b) “if within 30 days of receiving this letter you request the name and address of the original creditor, we will provide it to you in the event it differs from our client, ” (3) between November 5, 2014 and November 5, 2015, (4) in connection with the collection of a consumer debt, (5) that was not returned as undeliverable to GC Services Limited Partnership[.]

(D.N. 36, PageID # 361) The class-certification decision, as well as the Court's conclusion that Plaintiffs have Article III standing, was affirmed by the Sixth Circuit Court of Appeals. Macy v. GC Servs. L.P., 897 F.3d 747 (6th Cir. 2018). Because the case was stayed pending appeal, class members have not yet received notice of the action. (See D.N. 59, PageID # 538)

         GC Services has identified 8, 902 class members, including Macy and Stowe. (D.N. 74, PageID # 594) Under the proposed settlement, class members who do not opt out would automatically receive $10.00 each, while the named plaintiffs would each receive $2, 500 ($1, 000 in statutory damages and $1, 500 as an “incentive award”), plus fees and costs. (D.N. 74, PageID # 594-95) In addition, GC Services would “cease using the form of debt collection letter at issue” in this case. (Id., PageID # 594) The agreement contemplates an award of $220, 000 in fees to class counsel, and GC Services has agreed not to oppose the motion for attorney fees. (D.N. 74-1, PageID # 625-26) As discussed below, recent changes to Federal Rule of Civil Procedure 23 require careful scrutiny of these provisions before the settlement is preliminarily approved.

         II.

         The Court may approve a settlement only after determining that it is “fair, reasonable, and adequate.” Fed.R.Civ.P. 23(e)(2). At the preliminary stage, the Court “must make a preliminary determination” of these factors. Manual for Complex Litigation (Fourth) § 21.632 (2004). The standard for preliminary approval was codified in 2018, with Rule 23 now providing for notice to the class upon “the parties' showing that the court will likely be able to” approve the proposed settlement under the final-approval standard contained in Rule 23(e)(2). Fed.R.Civ.P. 23(e)(1)(B)(i); see Newberg on Class Actions § 13:10. That standard requires the Court to consider whether

(A) the class representatives and class counsel have adequately represented the class;
(B) the proposal was negotiated at arm's length;
(C) the relief provided for the class is adequate, taking into account:
(i) the costs, risks, and delay of trial and appeal;
(ii) the effectiveness of any proposed method of distributing relief to the class, including the method of processing class-member claims;
(iii) the terms of any proposed award of attorney's fees, including timing of payment; and
(iv) any agreement required to be identified under Rule 23(e)(3); and
(D) the proposal treats class members equitably relative to each other.

Fed. R. Civ. P. 23(e)(2).

         These factors, which are also part of the 2018 amendments to Rule 23, are not meant “to displace any factor” previously relied on by the courts, “but rather to focus the court and the lawyers on the core concerns of procedure and substance that should guide the decision whether to approve the proposal.” Fed.R.Civ.P. 23(e)(2) advisory committee's note to 2018 amendments. The rule largely encompasses the factors that have been employed by the Sixth Circuit:

(1) the risk of fraud or collusion; (2) the complexity, expense and likely duration of the litigation; (3) the amount of discovery engaged in by the parties; (4) the likelihood of success on the merits; (5) the opinions of class counsel and class representatives; (6) the reaction of absent class members; and (7) the public interest.

Pelzer v. Vassalle, 655 Fed.Appx. 352, 359 (6th Cir. 2016) [Vassalle II] (quoting UAW v. Gen. Motors Corp., 497 F.3d 615, 631 (6th Cir. 2007)). In addition to the seven factors listed above, the Sixth Circuit has “looked to whether the settlement ‘gives preferential treatment to the named Plaintiffs while only perfunctory relief to unnamed class members.'” Vassalle v. Midland Funding LLC, 708 F.3d 747, 756 (6th Cir. 2013) [Vassalle I] (quoting Williams, 720 F.2d at 925).

         The Sixth Circuit does not appear to have considered the new version of Rule 23(e)(2). Since the amendment, courts within the Sixth Circuit have been applying both sets of factors. See, e.g., Elliott v. LVNV Funding, LLC, No. 3:16-cv-00675-RGJ, 2019 U.S. Dist. LEXIS 143692, at *18 (W.D. Ky. Aug. 23, 2019) (citing Peck v. Air Evac EMS, Inc., No. CV 5:18-615-DCR, 2019 U.S. Dist. LEXIS 11826 (E.D. Ky. July 17, 2019)). In light of the substantial overlap between the two sets, they can easily be considered together.

         A. Adequate Representation/Amount of Discovery/Opinions of Class Counsel and Representatives The Court previously found that Macy and Stowe were adequate class representatives and that their counsel was qualified (see D.N. 36, PageID # 353-56), and there is no indication that either class counsel or the class representatives have failed to adequately represent the class since that time. Macy and Stowe rejected GC Services' offer of judgment early in the case, instead opting to pursue their claims on behalf of the entire class. Through those efforts, they secured a settlement in which each class member would recover $10.00. They believe this settlement to be fair, reasonable, and adequate, as does class counsel, who has extensive experience in similar litigation. (See D.N. 74, PageID # 616-17; D.N. 74-1, PageID # 610) And the settlement was reached after substantial discovery and motion practice (see D.N. 74, PageID # 600), giving the class representatives and counsel “a sufficient understanding of the case to gauge the strengths and weaknesses of the claims and the adequacy of the settlement.” N.Y. State Teachers' Ret. Sys. v. GM Co., 315 F.R.D. 226, 236 (E.D. Mich. 2016) (citing In re Telectronics Pacing Sys., Inc., 137 F.Supp.2d 985, 1015 (S.D. Ohio 2001)). These factors weigh in favor of preliminary approval. See Fed.R.Civ.P. 23(e)(2)(A); Pelzer, 655 Fed.Appx. at 359.

         B. Arm's-Length Negotiations/Risk of Fraud or Collusion

         There is no evidence of fraud or collusion here. The procedural posture of the litigation indicates that “the agreement arose out of arms-length, noncollusive negotiations.” Newberg on Class Actions § 13:14. This case has been pending for four years, with extensive motion practice and discovery during that time, as well as an interlocutory appeal. See Id. (“Where the proposed settlement was preceded by a lengthy period of adversarial litigation involving substantial discovery, a court is likely to conclude that settlement negotiations occurred at arms-length.”). The fact that the settlement was reached through mediation likewise suggests “an absence of collusion.” Id. These factors therefore also weigh in favor of preliminary approval.

         C. Adequacy of Relief

         1. Costs, Risks, and Delay of Trial and Appeal/Complexity, Expense, and Likely Duration of the Litigation/Likelihood of Success on the Merits

         Although this case is not particularly complex, the parties have already invested substantial time and money litigating it, and proceeding to trial would significantly increase the required investment. According to Plaintiffs, GC Services “intended to renew its motion to compel arbitration” following appeal of the certification and standing issues, and it would have appealed any unfavorable ruling as to arbitration; if unsuccessful on that front, it would have sought summary judgment. (D.N. 74, PageID # 599) And had the case proceeded to trial, GC Services would have “argu[ed] that statutory damages should be discounted substantially.”[1] (Id.) Thus, at each stage of the litigation, Plaintiffs would have faced opposition and uncertainty. Even if they had prevailed at trial, they might have been awarded only nominal damages. In other words, their likelihood of success on the merits-or of substantial recovery-is unclear. Thus, these factors suggest that settlement is appropriate.

         2. Method of Distribution

         The proposed settlement does not entail a complicated claims or distribution process; any class member who does not opt out will be mailed a check for $10.00. (See D.N. 74-1, PageID # 622) The Class Administrator will take several steps before that point to ensure that class members' addresses are up to date. (See id., PageID # 622-23) And unclaimed funds-which should be minimal, given the automatic-distribution and address-updating provisions in the agreement-would not revert to GC except to cover expenses of settlement administration, “with the remainder paid to Legal Aid Society of Louisville as a cy pres recipient.” (D.N. 74-1, PageID # 622) There thus does not appear to be an attempt to benefit GC Services by restricting class members' recovery. See Federal Judicial Center, Managing Class Action Litigation: A Pocket Guide for Judges 19-20 (3d ed. 2010) (identifying restrictions on claims and reversion of unclaimed funds as red flags that settlement may be unfair or collusive).

         3. Attorney Fees

         The attorney fees contemplated by the settlement agreement are somewhat troubling. First, the agreement contains a clear-sailing provision under which GC Services agrees not to oppose Plaintiffs' motion for attorney fees. (D.N. 74-1, PageID # 625) Though such provisions are not “unlawful per se, . . . their inclusion gives the district court ‘a heightened duty to peer into the provision and scrutinize closely the relationship between attorneys' fees and benefit to the class.'” Gascho v. Global Fitness Holdings, LLC, 822 F.3d 269, 291 (6th Cir. 2016) (quoting In re Bluetooth Headset Prods. Liab. Litig., 654 F.3d 935, 948 (9th Cir. 2011)). The parties further agree that “[f]or the limited purpose of seeking a fee award, the Class Representatives and the Class will be considered the prevailing party in this litigation” and that Plaintiffs will request $220, 000 in attorney fees.[2] (Id., PageID # 626) This figure is not inherently unreasonable; however, it represents approximately sixty-five percent of the total settlement amount- significantly higher than the twenty-to-thirty-percent range typical in class-action settlements.[3] See Dick v. Sprint Commc'ns Co., 297 F.R.D. 283, 299 (W.D. Ky. 2014) (citing Fournier v. PFS Invs., Inc., 997 F.Supp. 828, 832 (E.D. Mich. 1998)).

         The Sixth Circuit has identified six factors to be considered when determining an appropriate fee ...


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