Gatchalian v. Atlantic Recovery Solutions, LLC

Background

Harriet Gatchalian brought a putative consumer class action against Atlantic Recovery Solutions, LLC, and other defendants. She alleged that Atlantic Recovery Solutions used voicemails and text messages to collect a consumer debt and that those messages failed to disclose the sender’s identity, the nature of its business, and that the communications were attempts by a debt collector to collect a debt. She also alleged that the messages falsely suggested that a civil lawsuit had been or would be filed to collect the debt.

Gatchalian asserted claims under the federal Fair Debt Collection Practices Act and California’s Rosenthal Fair Debt Collection Practices Act. The action was initially filed in state court and was later removed to federal court. The court denied Gatchalian’s motion to remand and later granted her motion to strike defendants’ affirmative defenses. After mediation, the parties reached a class-wide settlement.

Settlement Class and Terms

The settlement class consisted of people with California addresses who received voicemail messages or text messages from Atlantic Recovery Solutions in an attempt to collect defaulted consumer debt on behalf of DNF Associates, LLC, where the debt was originally owed to Sallie Mae Bank. The class period began June 6, 2021, and ran through the date of class certification. People who timely requested exclusion, certain defendants and their representatives, and the presiding judicial officers, their immediate families, and court staff were excluded.

The agreement required defendants to establish a $51,975 settlement fund. Each class member would receive at least $175. Any checks remaining uncashed 90 days after mailing would be distributed to the Katharine and George Alexander Community Law Center as a cy pres recipient, meaning an organization receiving unclaimed settlement funds when direct distribution is not possible. Defendants also agreed to pay Gatchalian $2,000 in statutory damages, pay her a $2,000 service award, and stop collecting from her the debt originally owed to Sallie Mae Bank.

The settlement released claims under the federal and California debt-collection statutes, and similar or related claims arising from the conduct described in the complaint during the class period. The release included unknown claims and waived rights under California Civil Code section 1542 for the released claims.

Notice and Cy Pres Recipient

The settlement administrator mailed notice to 248 class members. Fifty notices were initially returned, and notice was remailed to 44 people after further address searches. Six notices were ultimately treated as undeliverable. After the court determined that the settlement website did not initially contain the final-approval motion and fee motion, it ordered class counsel to reissue notice and make those documents available. A second postcard notice was distributed. No requests for exclusion or objections were received, and the court concluded that the parties provided the best practicable notice.

The court approved the Katharine and George Alexander Community Law Center as the cy pres recipient. The court found that the center’s work providing legal assistance to low-income people with consumer issues was sufficiently related to the lawsuit and to the purposes of the federal and California debt-collection statutes.

Final Settlement Approval

The court incorporated its earlier analysis certifying the class for settlement purposes under Federal Rule of Civil Procedure 23. It evaluated whether the settlement was fair, adequate, and reasonable under Rule 23(e), considering the strength of Gatchalian’s case, the risks and costs of continued litigation, the settlement amount, the stage of the proceedings, counsel’s experience and views, the class members’ reactions, and other factors.

The court concluded that the fairness factors supported approval. The settlement offered class members certain recovery while avoiding the risks, expense, and delay of continued litigation. The court also found that the settlement amount represented the maximum statutory class recovery based on evidence concerning defendants’ combined net worth.

The court separately examined possible signs of collusion under the factors commonly associated with the Bluetooth decision. Although the requested attorney’s fees exceeded twice the settlement fund, the court found no disproportionate fee award because the settlement obtained the statutory maximum recovery in light of defendants’ net worth. The court also found no clear-sailing provision and no reversion of unawarded fees to defendants. It concluded that the agreement resulted from arms-length negotiations and was not the product of collusion.

Attorney’s Fees, Costs, and Incentive Award

The court applied the lodestar method, which calculates fees by multiplying a reasonable hourly rate by the reasonable hours worked. It approved hourly rates of $750 for Fred Schwinn, $650 for Raeon Roulston, and $550 for Matthew Salmonsen. The court also declined to reduce the 187.20 hours billed by counsel, finding the billing records sufficiently detailed and defendants’ objections unpersuasive.

Counsel calculated a lodestar of $129,830 but capped the requested fee at $123,500. The court found $123,500 in attorney’s fees reasonable. It also approved $2,215.61 in litigation costs, concluding that the expenses were necessary to prosecute the case and were the type normally billed to a paying client.

The court approved Gatchalian’s $2,000 incentive award based on her asserted work for the class, including providing documents, answering questions, reviewing documents, and attending mediation. The award was separate from her $2,000 in statutory damages.

Disposition

Judge Jacquelyn Scott Corley granted Gatchalian’s motion for final approval of the class action settlement. The court also granted Gatchalian’s motion for attorney’s fees and costs and awarded $123,500 in attorney’s fees, $2,215.61 in litigation costs, and $2,000 as an incentive award. The order disposed of Docket Nos. 58 and 59 and required class counsel to file and post a post-distribution accounting within 21 days after distribution of the settlement funds and payment of attorney’s fees.