In this blog, I highlight the many legal avenues open to companies that may find themselves in the midst of a class action suit. Receivables Management Association International (RMAI) obtained two great lawyers to discuss class action lawsuit defense. These two top-notch industry defense attorneys, Tom Dominczyk and Brent Yarborough, provide excellent options for defendants in Fair Debt Collection Practices Act (FDCPA) cases and I highlight their summary points below. Of course, the best way to avoid the headache of any lawsuit is maintaining and ensuring compliance, one of my specialties at Tag Process. Nevertheless, the boon of “unsophisticated debtors” and attorneys willing to charge premiums to litigate debt collection notices continues unabated, in spite of many judges tiring of such cases clogging their calendars. Read on to learn ways to mitigate the damages resulting from involvement or implication in a class-action suit.
Strategies to Move Forward in the Event of a Class Action Claim
The first step upon learning you’re involved in a class action suit is correcting the issue that is being brought to light as a possible suit. Secondly, ideally, if you find yourself in a class action suit, the lead plaintiff may be open to settling individually. Without the option for settling, another option is fighting the case individually, still avoiding class discovery; however, this doesn’t insulate from future claims. Another option for dealing with a class action suit is allowing the statute of limitations to expire. If you receive a claim and then correct the issue moving forward, running down the clock with extended timing is one way to invalidate the claim. Of course, fighting the class suit is another option. Winning a class suit insulates against future claims in other jurisdictions; however, losing a class suit is an expensive prospect, regulators are alerted, and the announcement of the class action suit is public.
The decision on what you chose to do is largely based on what judge you receive. In fact, many judges consider cases similar to the Avila case as “lawyer’s cases,” simply giving attorneys work and not existing as valid claims. The decision on what to do is also based on your net worth, the net worth of the suit, whether the problem has been corrected, whether you can anticipate additional cases, and the skill and experience of the opposing counsel.
The first step is evaluating any claim for arbitration. Many times, class suits will settle prior to arbitration but many times, attorneys can assert the need for arbitration as part of the first counter-response. Arbitration avoids discovery and dispositive motions and judges are often very pleased to have a case sent to arbitration, clearing their calendar.
If there is no provision for arbitration, filing a dispositive motion evaluating the merits of the plaintiffs’ claims early. For instance, if your plaintiff is in bankruptcy, this will negate any ability to move forward with additional claims. Under dispositive motions, there are legal avenues to strike the claim such as lack of typicality, lack of predominance, lack of superiority, or inability to determine additional litigants outside of the chief plaintiff; however, courts often believe that striking the claim is often premature. Dismissing or striking a class claim with no discovery is often not a valid avenue. There is often room to determine that the plaintiffs may not be able to actually establish a class.
First to File
It is also worth checking if there is a similar case in another jurisdiction, as a judge can simply dismiss a case if there is a similar pending case in a different jurisdiction. The cases do not have to be completely similar. This is a discretionary determination on a per judge basis, and some judges will consolidate the claim rather than dismiss. The dismissal will usually be without prejudice in case the currently litigated claim isn’t advanced however this action will also help stay the judicial clock. Depending on where the case is filed, offering the plaintiff an offer for judgment or tender will result in, essentially, a settlement, in which the defendant offers to pay the plaintiff (individually) to drop the claim moving forward prior to a class action suit. It is also important to establish as the defendant that any named class action plaintiffs are subject to the one-way intervention: all plaintiffs must accept responsibility for the judgment whether favorable or unfavorable to their perceived outcome.
Class Action Litigation
Should you find yourself in a situation in which you decide to move ahead with a class action suit, asking the plaintiff to bear the cost of notice for the additional litigants is a way to diffuse the furthering of the case. The initial notice of the suit is often judged to be the onus of the plaintiff since the liability of the defendant has not yet been established. Many times this is a cost the plaintiff is not prepared to bear, eliminating the class action suit altogether. Even before any litigation, an offer to the primary class action litigant will result in settling. An especially attractive offer to settle is offering to forgive the plaintiff’s debt. This will not be granted by a court and offers a quick way to avoid a case proceeding. It is crucial, though, to make sure that the plaintiff receives this offer, as many plaintiff’s attorneys have an incentive not to settle. A common concern is that by paying off a plaintiff, the attorney will simply select another plaintiff, which is a question you can ask before you choose to settle.
Net worth at the time of resolution is how the amount of the class action is determined. Thus, the timing is important to consider when you might decide to settle. If you know your net worth will increase or decrease, this is an important factor to consider when determining a timeline for a class action suit.
It is also important to include goodwill in your net worth, which many courts recognize as part of your net worth and results in an increased value for your net worth. Whether the district court you are in considers net worth as book value or fair market value can more than double a company’s net worth. Since the FDCPA values class action suit payouts as 1% of the company’s net worth, whether your jurisdiction considers fair market or book net worth is highly relevant to any class action payout.
Ways to Mitigate Cost
Consumer advocate lawyers charge more than most business lawyers. It is thus important to have your attorney draft briefs and motions, as it’s possible to be judged that you are responsible for the plaintiff’s legal fees. It is also worthwhile to attempt to have the court help broker any settlement deal so the plaintiff can’t allege that the settlement offer isn’t fair.
Class action suits are a huge headache! Luckily, with Tag Process’s strict adherence and knowledge of compliance issues in all areas and localities in which we work, we help insulate debt collectors from involvement in class action suits. Reach out to us today to find out how we can help you stay compliant and avoid the headache and cost of any lawsuits, but especially class action suits!
This information is not legal advice and may not be used as legal advice. Information discussed or contained is not an explanation of the law and is presented for educational purposes only.