Seaman v. National Collegiate Student Loan Trust 2007-2

Background

This was a certified class action under the Fair Debt Collection Practices Act and state law. The plaintiffs alleged that the defendant student-loan holders, their servicer, and their collection law firm carried out a fraudulent “default mill” scheme in state courts to obtain payment on student-loan debts they could not prove were owed. The alleged conduct resulted in default judgments against more than 1,000 borrowers, followed by collection efforts such as wage garnishments and reporting the judgments to credit bureaus.

The class had been certified under Federal Rule of Civil Procedure 23(b)(3). It covered people sued in New York State debt-collection actions from November 1, 2012, through February 27, 2018, in cases brought by specified Trust Defendants, serviced by TSI-NCO, and handled by Forster, where a default judgment was obtained, subject to the stated exclusion for people who appeared and lost on the merits. Earlier discovery had included a sample of documents concerning 5% of the putative class members, and discovery closed on May 21, 2021.

The requested discovery

The plaintiffs moved to compel the defendants to produce individualized information about every absent class member. They sought information including the originating bank, the Trust Defendant that brought the collection case, the amount of the default judgment, the amount collected, and the amount still outstanding. They primarily wanted to use the information in the notice of pendency—the notice informing class members about the action and their rights—to tell each person the amount they might potentially recover. They also argued that the information would make the notice appear genuine and help recipients decide whether to opt out of the class.

The plaintiffs alternatively sought the defendants’ complete loan and collection files to check the accuracy of the class list. The defendants said they had provided, or were preparing to provide, a list of the 1,102 class members with names and addresses and had used a reasonable process to identify them.

Damages issue

The plaintiffs sought statutory and actual damages. The opinion states that the Fair Debt Collection Practices Act limits statutory damages to $1,000 in an individual action and, in a class action, to $500,000 or 1% of the debt collector’s net worth, whichever is less. The plaintiffs also sought damages measured by funds collected through garnishments on the default judgments.

The court had not resolved whether the Rooker-Feldman doctrine would bar that actual-damages theory. That doctrine generally prevents a federal district court from functioning as an appeal from a state-court judgment. The parties agreed that the issue was likely to arise on summary judgment. Because the damages theory remained untested, the court concluded that including individualized potential-damages figures in the class notice could mislead class members.

Court’s analysis

For a class certified under Rule 23(b)(3), Rule 23 requires the best practicable notice under the circumstances, including individual notice to class members who can be identified through reasonable effort. The notice must plainly and concisely describe the action, the class definition, the claims or issues, the right to appear through counsel, the right to request exclusion, the deadline and method for requesting exclusion, and the binding effect of any class judgment.

The court held that Rule 23 does not require a notice of pendency to include potential damages, much less a personalized damages preview for every class member. The cases cited by the plaintiffs did not establish such a requirement. Some involved notices after damages had been determined, settlement notices, disclosure of possible tax consequences, or discovery used to calculate damages for trial rather than information included in a notice of pendency.

The court also rejected the argument that individualized information was needed to convince class members that the case was real. It noted that the plaintiffs had not identified a case requiring this kind of individualized information in a class notice for that reason or to help class members decide whether to opt out. The court stated that member-by-member data might become appropriate for calculating damages at trial or administering a settlement, but concluded that this was not the time to obtain it for the proposed notice.

Disposition

The court denied the plaintiffs’ motion to compel insofar as the requested discovery was intended to obtain individualized information for inclusion in the notice of pendency. It did not decide the separate issue of whether discovery was warranted to verify the accuracy of the class list, because the record did not show whether the defendants had produced their revised list or whether the plaintiffs were satisfied with it. The court reserved judgment briefly on that issue.

The plaintiffs were directed to prepare a proposed notice, confer in good faith with the defendants, and submit the notice to the court by October 22, 2024. The defendants were directed to promptly produce the revised class list if they had not already done so and to confer with the plaintiffs about its adequacy. Any disputes about the notice or class list were to be presented in joint letters of no more than three pages.