Chen v. Chase Bank USA, N.A.

Background

Jeffrey Chen brought a class action alleging that Chase Bank USA, N.A. violated the Equal Credit Opportunity Act, a federal law governing credit discrimination and credit-application notices. Chen alleged that Chase denied his credit-card application and stated only that it could not approve the request because of a “previous unsatisfactory relationship with this bank.” He contended that the notice did not provide a specific reason or explain his right to receive a statement of specific reasons.

Chase removed the case from California state court to the federal district court. Chase moved to dismiss for lack of statutory standing and failure to state a claim, but the court denied that motion. The parties later exchanged discovery, participated in mediation, negotiated further, and reached a settlement in principle. The court preliminarily approved a revised settlement after raising concerns about settlement-administration costs and notice.

Settlement Class and Notice

The settlement class consisted of natural persons who received from Chase, between January 28, 2014, and November 22, 2019, an adverse-action letter for a credit-card account that used either “previous unsatisfactory relationship with this bank” or “previous unsatisfactory relationship with us or one of our affiliates” as the only stated reason. The class included approximately 18,183 people.

The settlement administrator sent notices by email or mail, re-mailed certain notices, created a settlement website, and maintained a telephone hotline and email address. By the relevant deadlines, 2,982 valid claims had been identified. Ten people requested exclusion from the settlement, and no objections were filed.

Settlement Terms

Chase agreed to pay $244,659 for payments to the settlement class, settlement-administration and notice costs, and a class-representative incentive award of up to $5,000. Because administration costs totaled $59,242.46, the estimated net amount for claiming class members was $180,416.54, resulting in an estimated payment of $60.89 for each claimant.

The agreement also required Chase, for five years after final approval, not to use either challenged phrase as the sole reason for denying a credit-card application or taking another adverse action involving a Chase credit-card account. Chen and the class agreed to release claims arising from Chase’s use of those phrases in qualifying notices and from the conduct alleged in the complaint through November 22, 2019.

Class Certification

The court granted final certification of the settlement class under Federal Rule of Civil Procedure 23. It found that the class met the requirements concerning numerosity, common questions, typical claims, adequate representation, predominance of common issues, and superiority of a class action. The court also found that the notice adequately described the claims, settlement, class-member options, release, and procedures for opting out or objecting.

Final Settlement Approval

Under Rule 23(e), a class settlement must be fair, adequate, and reasonable. The court considered the strength and risks of Chen’s claims, the risks of maintaining class certification, the settlement amount, the discovery completed, counsel’s experience and views, government notice, and the class’s reaction.

The court noted risks involving punitive damages, whether class members were legally harmed, whether the reasons in Chase’s notices were sufficiently specific, Chase’s asserted good-faith defense, and the cost of continued litigation. The settlement represented an estimated 36 percent of the class members’ potential punitive-damages recovery and included five years of injunctive relief. The court concluded that these factors favored approval.

Because the settlement was reached before class certification, the court also examined possible collusion. It identified two warning signs: the fees were nearly as large as the class payout, and the agreement included a provision under which Chase would not oppose a fee request up to $185,000. The court concluded that these circumstances did not show collusion because the fees were separate from the class recovery, the class recovery was fair in light of the litigation risks and injunctive relief, and the requested fees were reasonable. The court also noted that the agreement was non-reversionary, meaning unused settlement funds would not revert to Chase.

The court held that the settlement resulted from arms-length negotiations and satisfied Rule 23(e). It therefore granted final approval of the settlement.

Fees, Costs, and Incentive Award

The court applied the lodestar method to evaluate attorneys’ fees. That method generally calculates fees by multiplying reasonable hours by reasonable hourly rates. Counsel reported 510.5 hours and a lodestar of $263,957.50. The court found the hourly rates reasonable and concluded that the requested $176,473.93 fee represented a negative multiplier of 0.67, which supported the reasonableness of the request. The court awarded $176,473.93 in attorneys’ fees.

The court also approved $8,526.07 in litigation costs after reviewing the itemized cost summary and finding the expenses reasonable. It approved the full $59,242.46 in settlement-administration costs as a deduction from the settlement consideration.

Finally, the court approved Chen’s requested $5,000 incentive award. The court relied on counsel’s statements that Chen brought the matter to counsel’s attention, participated in discovery and settlement negotiations, and spent more than 40 hours on the case.

Disposition

Judge Jacquelyn Corley granted Chen’s motion for final approval of the class-action settlement and granted his motion for attorneys’ fees and costs. The court awarded $176,473.93 in fees, $8,526.07 in litigation costs, and $5,000 as Chen’s incentive award. The court required class counsel to file a post-distribution accounting within 21 days after distributing the settlement funds and paying fees, and directed the clerk to close the case.