Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_05-cv-02057/USCOURTS-casd-3_05-cv-02057-0/pdf.json

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

---

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

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.

)

)

)

)

)

)

)

)

)

)

)

)

Civil No. 05cv2057-L(JMA)

ORDER RE: SUPPLEMENTAL

BRIEFING

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. The letter

stated in part that Defendant purchased Plaintiff’s debt, and that “your credit bureau report may

be reviewed. Now is the time to improve your credit report.” (Compl. Exh. A.) Plaintiff alleges

that the letter violated the law, and that Defendant engaged in unlawful practices. Plaintiff seeks

to certify a class action, and obtain a declaratory judgment that Defendant’s practices are

unlawful, statutory damages, as well as 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 all the documents

submitted by the parties, the Court finds their submissions should be supplemented. 

Case 3:05-cv-02057-L-JMA Document 16 Filed 06/05/07 Page 1 of 4
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 1 The court acknowledges that Defendant is not admitting any wrongdoing.

2 05cv2057

In the Complaint, Plaintiff alleges the letter violated the law in two respects: (1) it did not

provide a 30-day validation notice as set forth in 15 U.S.C. §1692g(a); and (2) the reference to

credit bureaus is misleading because under the Fair Credit Reporting Act a credit bureau cannot

report a debt charged off more than seven years previously. (Compl. ¶¶ 17-22.) The Joint

Motion and the proposed notice to the class appear to be based solely on the second theory of

liability.1

 If it was the parties’ intent not to base their settlement of the first theory, lack of a 30-

day validation notice, then it does not appear that a class action can be certified under the

proposed definition of the class, and the proposed settlement cannot be found to be fair,

reasonable and equitable on a preliminary basis.

At the preliminary fairness hearing the “judge should make a preliminary determination

that the proposed class satisfies the criteria set out in Rule 23(a) and at least one of the

subsections of Rule 23(b).” Federal Judicial Center, Manual for Complex Litigation ¶21.632

(2004). Heightened attention to class certification requirements is due when the parties enter

into a settlement agreement before class certification. Staton v. Boeing Co., 327 F.3d 938, 952

(9th Cir. 2003). 

Plaintiff’s theory that the reference to credit bureaus is misleading because a credit bureau

cannot report a debt charged off more than seven years previously, depends on the assumption

that the debt had been charged off. This was clearly the case with Plaintiff, who had discharged

his debt in bankruptcy more than seven years prior to receiving the letter. (Compl. ¶ 11.) The

proposed class definition, however, does not limit the class to those individuals whose debt had

been charged off. (See Joint Motion at 2-3.) It therefore does not appear that Plaintiff’s claims

are typical of the class or that there is a commonality of questions of law or fact, as required by

Federal Rule of Civil Procedure 23(a) and (b)(3). To the extent the parties intended to base their

Joint Motion on the theory that the letter failed to include a 30-day validation notice set forth in

15 U.S.C. §1692g(a), the Joint Motion does not so state, and should be supplemented. 

/ / / / /

Case 3:05-cv-02057-L-JMA Document 16 Filed 06/05/07 Page 2 of 4
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

3 05cv2057

The settlement proponents ultimately have the burden to show that the proposed

settlement is fundamentally fair, adequate, and reasonable. Staton, 327 F.3d at 959; 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). In this regard, the

court must make a preliminary determination before a settlement notice is given to the class. 

Manual of Complex Litigation §21.623. The proposed settlement provides for putative class

members to receive a 20% reduction of their balance due Defendant. (Joint Motion at 3.) With

respect to those members who made a payment after they received the letter, the settlement

agreement additionally provides they would receive a check in the amount of 60% of the

payment. (Id.) Accordingly, it appears that the members whose debt had been charged off or

paid receive no benefit from the settlement because, presumably, they owe nothing. (See

Settlement Agreement at 12 (“if the Settlement Class Member has taken unilateral action with

the account, such as to pay it off, file Chapter 7 bankruptcy, or to make it otherwise impossible

or impracticable to issue a credit, [Defendant] will be relieved of such duty to do so.”).) In their

supplemental briefing the parties should estimate the number of putative class members who will

not benefit by the settlement because their debt was charged off, paid or because they filed

Chapter 7 bankruptcy.

In their Joint Motion, the parties request the court to approve the proposed notice of class

certification, class action settlement, and intent of class counsel to move for attorneys’ fees. 

Rule 23(c)(2)(B) requires “the best notice practicable under the circumstances, including

individual notice to all members who can be identified through reasonable effort.” The parties

propose to send notice via first class mail to the class members’ last known address as identified

in Defendant’s business records. (Settlement at 9.) If Defendant’s business records do not

reveal a valid address or notice is returned by the Postal Service, Defendant is relieved of its

obligation to send a notice. (Id.) Proposed class notice further provides that only class members

who do not have their notice returned by the Postal Service will receive any recovery. 

(Settlement Exh. B at 2.) Based on this consequence, sending notices to the addresses contained

/ / / / /

Case 3:05-cv-02057-L-JMA Document 16 Filed 06/05/07 Page 3 of 4
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

4 05cv2057

in Defendant’s business records, without more, does not amount to a reasonable effort to identify

putative class members as required by Rule 23.

In addition, the notice must announce the terms of the proposed settlement, including the

procedures for allocating and distributing settlement funds. Manual of Complex Litigation

§21.312. The proposed class notice leaves out the condition that “if the Settlement Class

Member has taken unilateral action with the account, such as to pay it off, file Chapter 7

bankruptcy, or to make it otherwise impossible or impracticable to issue a credit, [Defendant]

will be relieved of such duty to do so.” (Settlement Agreement at 12.) This may be an important

consideration in a member’s decision whether to opt out, and should be included in the notice.

Last, the proposed settlement provides that the court retain jurisdiction over all disputes

arising out of the Settlement Agreement. In this regard, the parties are encouraged to consider

stipulating to magistrate judge jurisdiction pursuant to Civil Local Rule 72.1.

IT IS SO ORDERED.

DATED: June 4, 2007

M. James Lorenz

United States District Court Judge

COPY TO: 

HON. JAN M. ADLER

UNITED STATES MAGISTRATE JUDGE

ALL PARTIES/COUNSEL

Case 3:05-cv-02057-L-JMA Document 16 Filed 06/05/07 Page 4 of 4