Gatchalian v. Atlantic Recovery Solutions, LLC

Background

Harriet Gatchalian brought a proposed consumer class action against Atlantic Recovery Solutions, LLC, and other defendants, alleging abusive, deceptive, and unfair debt collection practices. The parties moved under Federal Rule of Civil Procedure 23 for provisional class certification solely for settlement purposes, preliminary approval of a proposed class action settlement, and a stay while the parties sought final approval.

Court’s concerns about the settlement amount

The court explained that the parties needed to identify the potential recovery if the class prevailed fully on each claim and justify any reduction reflected in the settlement. The parties did not provide information about the maximum potential damages. Counsel stated that the class would receive $51,975 and that the amount was fair given the defendants’ net worth, but the record contained no information about that net worth, either publicly or under seal.

The opinion cited 15 U.S.C. § 1692k(a)(2), which limits class recovery under the federal debt-collection law to 1% of a defendant’s net worth. Because the parties had not supplied the defendants’ net worth or a comparison between the settlement and the maximum possible recovery, the court could not evaluate the proposed settlement on the information submitted.

Court’s concerns about the notice

The court found the proposed class notice insufficient. It lacked the address of a settlement website that would list important deadlines and provide key case documents. It also lacked a clear statement that the date and time of the final approval hearing could change, together with instructions to check the settlement website or the court’s electronic records system to confirm the hearing date.

The notice did not explain how class members could opt out or what information they needed to provide in a written opt-out request. Although it told objectors to submit written objections to the court, it did not provide the mailing address for those objections. The court also noted that the notice did not adequately explain the attorneys’ fees and costs, any service award, when the fee motion would be filed, how class members could access that motion, or how they could object to it. Finally, the parties had not addressed whether notice under the Class Action Fairness Act was required and, if so, when it would be provided.

Ruling

The court required the parties to file a revised notice and a supplemental declaration explaining the settlement amount in relation to the maximum possible recovery and why the settlement was fair. The court stated that class counsel’s belief that the settlement was fair was not enough to support preliminary approval. After the supplemental materials were filed, the court would advise the parties whether a hearing was required. The opinion does not state that the motion was granted or denied.