A nationwide settlement of three class actions involving claims that a creditor’s practice of using “robo-signed” affidavits in debt collection actions violated the Fair Debt Collection Practices Act (FDCPA) has been overturned by the U.S. Court of Appeals for the Sixth Circuit.

In Vassalle v. Midland Funding LLC, the Sixth Circuit held that the district court had abused its discretion in approving the settlement and certifying the nationwide settlement class and erred in finding that the notice to the class satisfied due process. The settlement required the defendant to pay $5.2 million into a common fund for the benefit of the class and, by way of injunctive relief, to create and implement procedures to prevent the use of robo-signing. A retired federal judge was to monitor the defendant’s compliance with the injunction, which was to last one year.

The Sixth Circuit found that the settlement should not have been approved because the disparity in the relief it provided to the named plaintiffs and to the unnamed class members was so great as to make the settlement unfair. While exonerating the named plaintiffs of their debts, the settlement would prevent the unnamed class members from using the allegedly robo-signed affidavits against the defendant in any other lawsuit. In the court’s view, this would “virtually assur[e] that [the defendant] will be able to collect on these debts.” 

In addition, the court found the relief provided to the unnamed class members “perfunctory at best” because it would only pay them $17.38 each. The court also found that the one-year injunction was of little value for reasons that included leaving the defendant “free to resume its predatory practices” after the injunction expired. 

The court next concluded that the settlement did not satisfy two of the requirements for class certification: adequacy of representation and superiority of a class action. According to the court, adequacy of representation was lacking because the settlement’s forgiveness of the class representatives’ debts gave them an interest that was antagonistic to that of unnamed class members. While the unnamed class members were interested in ensuring the settlement’s disapproval so they could retain the right to challenge the affidavits in court, the class representatives were interested in securing the settlement’s approval so their debts would be forgiven.

The court found that the superiority factor was not satisfied because the unnamed class members had an interest in individually challenging the affidavits in lawsuits seeking to vacate the defendant's state court judgments against them. In the court’s view, the likelihood was high that many class members would bring individual lawsuits.

The Sixth Circuit found the class notice to be deficient because it did not adequately notify class members that by not objecting, a class member would lose the right to raise the affidavits against the defendant in the collection actions.