Chen v. Chase Bank USA, N.A.

Background

Jeffrey Chen brought a class action alleging that Chase violated the Equal Credit Opportunity Act, a federal law governing credit decisions and adverse-action notices. Chen alleged that Chase denied his credit-card application and sent him a letter stating that it could not approve the request because of a “previous unsatisfactory relationship with this bank.” He argued that this was not a sufficiently specific reason under the Act.

Chase removed the case from California state court to the U.S. District Court because the claims arose under federal law. Chase later moved to dismiss for lack of statutory standing and failure to state a claim; the court denied that motion. After mediation and further negotiations, the parties reached a settlement in principle and moved for preliminary approval.

Proposed Settlement Class

For settlement purposes, the court conditionally certified a class consisting of all natural persons who received from Chase, between January 28, 2014, and November 22, 2019, a letter stating either “previous unsatisfactory relationship with this bank” or “previous unsatisfactory relationship with us or one of our affiliates” as the only reason for an adverse action involving a credit-card account. The class contains approximately 18,183 people. Chase’s officers and directors, related entities and their officers and directors, and judges assigned to the litigation and their immediate family members are excluded.

Settlement Terms

Chase agreed to pay $244,659 for payments to the settlement class, notice and settlement-administration costs, and a possible incentive award of up to $5,000 for Chen. The settlement fund is non-reversionary. After the proposed incentive award and estimated administration costs, the projected net amount for class members would be $189,557. If every class member submitted a valid claim, the estimated payment would be $10.42 per person; based on the plaintiff’s estimated seven-percent claims rate, the estimated payment would be about $149 per claiming class member.

Class members must submit a valid claim form within 60 days after the notice date to receive payment. They may also exclude themselves from the settlement or object to it by the same deadline. Uncashed checks may lead to a second distribution if economically feasible, with any remaining funds distributed in a manner approved by the court.

Class members who do not opt out would release Chase and other released parties from claims arising from the challenged language in Chase adverse-action notices issued on or before November 22, 2019, and from the conduct alleged in the complaint. The agreement also waives the protections of California Civil Code section 1542 concerning unknown claims. The release is broader than the claims stated in the complaint.

The settlement would prohibit Chase, for five years after final approval, from using either challenged phrase as the sole reason for denying credit-card applications or taking another adverse action involving a Chase credit-card account. The agreement also provides that plaintiff’s counsel may seek up to $185,000 in attorneys’ fees and costs.

Court’s Analysis

The court applied Federal Rule of Civil Procedure 23, which governs class actions, and Rule 23(e), which requires a class settlement to be fair, adequate, and reasonable. Because the settlement was proposed before a class had been formally certified, the court reviewed both whether settlement purposes justified conditional class certification and whether the proposed agreement appeared potentially fair and non-collusive.

The court found the Rule 23(a) requirements satisfied. The class was sufficiently numerous, the claims presented common questions about whether Chase’s wording supplied a specific reason under the Equal Credit Opportunity Act and whether the credit decisions were adverse actions, and Chen’s claim was typical because he received the same type of denial letter. The court also found that Chen and class counsel appeared able to represent the class adequately.

The court further found that common questions predominated because the class members received the same non-individualized reason for the adverse action. A class action was superior to individual lawsuits because the individual claims had relatively low value, actual damages would be difficult to prove, and the claims involved a uniform practice.

For preliminary approval, the court found that the settlement appeared to result from serious, informed, and non-collusive negotiations. It found no obvious deficiencies and no improper preferential treatment. The court concluded that the projected net settlement of $189,557 appeared fair, reasonable, and adequate in light of Chase’s potential punitive-damages exposure, the difficulty of proving actual damages, the need to show recklessness for punitive damages, and possible challenges to maintaining class certification.

The court found the proposed notice plan adequate. Within 45 days of preliminary approval, the settlement administrator was required to establish a settlement website, email notice to class members with email addresses on file, and mail notice to people without valid email addresses or who did not open the email notice within seven days. Class members would have 60 days after the notice date to submit claims, opt out, or object.

The court did not finally determine the amount of attorneys’ fees or costs. It required class counsel to file a detailed fee petition and an itemized summary of costs so the court could evaluate the requested award, including through a lodestar cross-check, which compares reasonable hours multiplied by a reasonable hourly rate with the requested fee.

Disposition

The court granted preliminary approval of the class action settlement. It conditionally certified the settlement class, appointed Ray E. Gallo and Gallo LLP and Alexander Darr and Darr Law LLC as class counsel, approved the notice schedule, and set deadlines for exclusion requests, objections, the fee motion, and the motion for final approval. The final approval hearing was set for June 25, 2020. This order was preliminary approval, not final approval of the settlement.