Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_05-cv-02057/USCOURTS-casd-3_05-cv-02057-1/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 15:1692 Fair Debt Collection Act

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05cv2057

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

DARRELL YBARRONDO, on Behalf of

Himself and All Others Similarly Situated,

Plaintiff,

v.

NCO FINANCIAL SYSTEMS, INC., and

DOES 1-25, inclusive,

Defendants.

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Civil No. 05cv2057-L(JMA)

ORDER DENYING WITHOUT

PREJUDICE JOINT MOTION FOR

CERTIFICATION OF A

SETTLEMENT CLASS,

PRELIMINARY APPROVAL OF

CLASS ACTION SETTLEMENT

AGREEMENT, AND NOTICE TO

THE CLASS [DOC. NO. 15, 22]

This is an unfair debt collection action pursuant to Fair Debt Collection Practices Act, 15

U.S.C. §§ 1692 et seq. and Rosenthal Fair Debt Collection Practices Act, Cal. Civ. Code § 1788

et seq. Plaintiff alleges he received a form letter from Defendant, a debt collector in violation of

the fair debt collection laws. He seeks to certify a class action, obtain a declaratory judgment

that Defendant’s practices were unlawful, statutory damages, and attorneys’ fees, costs and

expenses of litigation. 

After Defendant filed an answer denying liability, the parties filed a Joint Motion for

Class Certification of a Settlement Class, Preliminary Approval of Class Action Settlement

Agreement, and Notice to the Class (“Joint Motion”). Upon review of the documents submitted

by the parties, the court found they were inadequate to warrant preliminary settlement approval. 

By order signed June 4, 2007, the court ordered supplemental briefing and identified the areas of

concern the parties were to address. On December 28, 2007, Plaintiff filed a Supplemental Brief

Case 3:05-cv-02057-L-JMA Document 24 Filed 01/18/08 Page 1 of 5
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1 Plaintiff also alleged that the letter violated 15 U.S.C. § 1692g for failure to

provide a validation notice. (Compl. ¶¶ 16, 17.) However, after discovery, Plaintiff decided to

“dismiss” this claim. (Supp. Brief at 2.) No dismissal has been filed to date on that claim,

however.

2 05cv2057

in Support of the Joint Motion for Certification of a Settlement Class, Preliminary Approval of

Class Action Settlement Agreement, and Notice to the Class (“Supp. Brief”). Plaintiff indicated

that in addition to the concerns expressed by the court, the parties received a letter from the

office of the California Attorney General also raising concerns regarding the settlement. In light

of the concerns expressed by the court and the California Attorney General, they renegotiated

the settlement. The Supplemental Brief is based on the new settlement agreement.

The Complaint alleges the collection letter Plaintiff received from Defendant stated in

pertinent part: “Your account has been purchased by NCO Portfolio Management . . .. If you

have applied for a loan, new job, credit card, insurance or an apartment, your credit bureau

report may be reviewed. Now is the time to improve your credit report.” (Compl. ¶ 12-15, 19-

21 & Exh. A.) Plaintiff had discharged the debt some twenty years earlier. (Id. ¶ 20.) He

alleged the reference to credit bureaus was false, deceptive, and misleading under 15 U.S.C. 

§§ 1681 et seq. and §§ 1692 et seq. because “a credit bureau cannot report a debt charged off

more than seven years previously” and because the reference “mislead[s] the least sophisticated

debtor into believing that payment or nonpayment of the claimed debt may impact the

consumer’s credit rating, when that is not true.”1

 (Compl. ¶ 20.) The same language was alleged

to violate California Civil Code Section 1788 et seq. (Comp. ¶ 22.) Plaintiff further alleged

that sending letters such as the letter he received was Defendant’s policy and practice. (Id. ¶¶

23, 24.) 

The parties propose to certify a settlement class consisting of 

natural persons with California addresses who meet the following criteria: (a)

he/she was sent a letter by NCO Financial Systems, Inc. in the same or

substantially similar form to the letter represented by Exhibit A attached to the

Agreement (“hereinafter the “Letter”); (b) the Letter was sent on or after

November 3, 2004 and on or before March 10, 2006 and the Letter was not

returned by the Postal Service; and (c) the Letter seeks to collect a debt originally

owed to American General Finance.

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3 05cv2057

Under the First Amended Settlement Agreement, in exchange for a release, Defendant

will waive and forgive each class member’s debt underlying the letter and pay $23 to each class

member who timely submits a claim. (Supp. Brief at 3; First Am. Class Action Settlement

Agreement (“Agreement”) at 12-13.) In addition, Defendant will pay the named Plaintiff $2,000

in recognition of his services, $7,000 to a mutually-agreed charitable organization, and $15,000

for attorneys’ fees and costs. (Agreement at 12-13, 15.)

Upon review of the Complaint, Supplemental Brief, Joint Motion and the First Amended

Class Action Settlement Agreement, the Joint Motion is DENIED WITHOUT PREJUDICE. 

When the parties renew their motion:

1. The parties must address the issue of settlement fairness. The settlement proponents

ultimately have the burden to show the proposed settlement is fundamentally fair, adequate, and

reasonable. Staton v. Boeing Co., 327 F.3d 938, 959 (9th Cir. 2003); see also Officers for

Justice v. Civil Svc. Comm'n. of the City and County of San Francisco, 699 F.2d 615, 625 (9th

Cir. 1982); Molski v. Gleich, 318 F.3d 937, 953 (9th Cir. 2003). The court must be in a position

to make a preliminary determination before a notice is given to the class. Manual of Complex

Litigation §21.623 (Fed. Jud. Ctr. 2004). Plaintiff represents the total current face value of the

debt forgiveness terms of the settlement is approximately $5.8 million and there are

approximately 1,400 putative class members. (Supp. Brief at 5.) The average debt per class

member therefore amounts to over $4,000. The settlement provides for the same award to class

members who paid all or any portion of their debt upon receiving the allegedly misleading letter

as the class members who paid none of their debt. This amounts to vastly disparate treatment

among class members. For example, a class member who paid off a $4,000 debt upon receipt of

the letter will receive no benefit from the debt forgiveness terms of the settlement and $23 from

the monetary terms of the settlement, if he or she timely files a claim. On the other hand, a class

member who paid no portion of his or her $4,000 debt will receive a $4,000 benefit from the

/ / / / /

/ / / / /

/ / / / /

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2 The court allows that for the class members like Plaintiff, whose debt had been

discharged more than seven years prior to receiving the letter and who did not send a payment

after receiving the letter, the debt forgiveness benefit of the settlement amounts to nothing. 

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debt forgiveness terms of the settlement,2 if he or she does nothing, and a $4,023 benefit from

the debt forgiveness and monetary terms of the settlement if he or she timely files a claim. The

class members who sustained greater damage receive less relief than the class members who

sustained lesser damage. The parties provide no information or argument to show how their

proposed settlement is fundamentally fair, adequate, and reasonable. Based on their initial

settlement agreement, it appears possible to determine from Defendant’s records the amounts

paid and owing for each class member. In addition, the parties shall estimate the number of class

members whose debt had been charged off more than seven years before they received

Defendant’s letter. The parties should consider this information in formulating a settlement

allocation plan, or explain why they should not. 

2. The parties must address the issue of the named Plaintiff’s proposed $2,000 cash

award, which appears disproportionately large in comparison to the class members’ $23 cash

award. In their renewed motion, the parties should show how the named Plaintiff’s award

breaks down between damages and incentive payment, and how the incentive payment was

earned.

3. The parties must provide an explanation why $7,000 is allocated to charitable purposes

rather than added to the funds available for class members’ damages. Typically, a cy pres award

in class actions is made from unclaimed funds when equitable distribution of such funds to class

members is not economically feasible.

4. The parties must submit a proposed order in an editable form as required by Electronic

Case Filing Administrative Policies and Procedures Manual § 2(h).

IT IS SO ORDERED.

DATED: January 18, 2008

M. James Lorenz

United States District Court Judge

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5 05cv2057

COPY TO: 

HON. JAN M. ADLER

UNITED STATES MAGISTRATE JUDGE

ALL PARTIES/COUNSEL

Case 3:05-cv-02057-L-JMA Document 24 Filed 01/18/08 Page 5 of 5