A divided Eleventh Circuit Court of Appeals panel has determined, like the Third and Seventh Circuits, that the consent of absent class members to a magistrate judge’s jurisdiction under the Federal Magistrates Act is unnecessary for the judge to exercise subject-matter jurisdiction and enter a final judgment approving a class-action settlement. Day v. Persels & Assocs., LLC, No. 12-11887 (11th Cir., decided September 10, 2013). The issue arose in the context of a dispute over whether certain companies and law firms providing credit-counseling services had violated Florida consumer-protection law for failing to disburse payments to the creditors of the named plaintiff and putative class members.
The named plaintiff and defendants consented, under 28 U.S.C. § 636(c), to have a magistrate judge conduct all the proceedings and enter a final judgment. While the case was originally brought on behalf of affected debtors in Florida, it was expanded for purposes of settlement to all persons in the United States "who had entered agreements for legal advice concerning debt with the legal service defendants," amounting to some "125,000 absent plaintiffs." According to the court, "The agreement provided no monetary relief to the absent plaintiffs, but released any claims that an absent plaintiff had against the legal services defendants."
Settlement notice was provided to more than 98 percent of class members and the attorneys general of every state except Washington where a similar class action is pending. More than 300 class members opted out, and five class members and the attorneys general of five states objected to the agreement. The agreement was revised in response to the objections, and the magistrate conducted a fairness hearing during which just one of seven defendants demonstrated that it was unable to pay a meaningful award. The magistrate took the lack of monetary recovery into account in approving the settlement as fair, certified the class and awarded class counsel $300,000 and the named plaintiff $5,000.
On appeal, the objectors challenged the magistrate’s subject-matter jurisdiction and argued that he abused his discretion in finding that all seven defendants would be financially unable to satisfy a judgment without evidence introduced as to the financial position of six of them. Two panel members determined that absent class members are not parties under 28 U.S.C. § 636 and thus their consent was not required for the magistrate to enter a binding judgment settling their claims. They remanded the case, however, finding that the magistrate judge "abused his discretion when he found that the legal service defendants were financially unable to satisfy a significant judgment."
The concurring and dissenting judge would have ruled that the term "party" in the Federal Magistrates Act includes absent class members, explaining that the three options identified by the majority as a means for these litigants to exercise their rights—opting out, intervening as parties or collaterally attacking the decision to proceed before a magistrate judge on the ground of potential significant intra-class conflict—"are illusory if the unnamed class members are not aware of their right to an Article III judge." The class notice did not apparently inform them of this right. This jurist also applied Standard Fire Insurance Co. v. Knowles, 133 S. Ct. 1345 (2013), to support the argument that named class representatives cannot bind putative unnamed class members before certification