2002 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

9-16-2002

Spark v. MBNA Corp

Precedential or Non-Precedential: Non-Precedential

Docket No. 01-3370

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Recommended Citation

"Spark v. MBNA Corp" (2002). 2002 Decisions. Paper 571.

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 NOT PRECEDENTIAL 

 UNITED STATES COURT OF APPEALS 

 FOR THE THIRD CIRCUIT 

 

 NOS. 01-3370 and 01-3462 

 

 ANDREW B. SPARK, On behalf of himself and all others similarly situated, 

 v. 

MBNA CORP.; MBNA AMERICA BANK, N.A.; MBNA MARKETING SYSTEMS, 

INC.; RICHARD K. STRUTHERS; TERRANCE R. FLYNN; DAVID L. MCGOWAN; 

 MARK C. SULLIVAN 

 COPHEN E. SEARS, III, DANIEL J. HILL and 

 ALAN SHAPIRO,* Appellants in No. 01-3370 

 (* Pursuant to Rule 12(a), F.R.A.P.) 

 WALTER R. SCHOETTLE,* Appellant in No. 01-3462 

 (* Pursuant to Rule 12(a), F.R.A.P.) 

 

 On Appeal From the United States District Court 

 For the District of Delaware 

 (D.C. Civil Action No. 96-cv-00497) 

 District Judge: Honorable Roderick R. McKelvie 

 

 

 No. 01-3370 Argued June 28, 2002 

No. 01-3462 Submitted Pursuant to Third Circuit LAR 34.1(a) June 28, 2002 

 BEFORE: AMBRO and STAPLETON and CUDAHY,* Circuit Judges 

________________________________________________________________________ 

* Honorable Richard D. Cudahy, United States Circuit Judge for the Seventh Circuit, 

 sitting by designation. 

 (Opinion Filed September 16, 2002 ) 

 

 John X. Denney, Jr. 

 Tomar, Simonoff, Adourian & O’Brien 

 Mellon Bank Center, Suite 1701 

 919 Market Street - P.O. Box 955 

 Wilmington, DE 19801 

 and 

 Daniel A. Edelman 

 Cathleen M. Combs 

 James O. Latturner (Argued) 

 Edelman, Combs & Latturner 

 120 South LaSalle Street - 18th Floor 

 Chicago, IL 60603 

 Attorneys for Appellee Andrew B. Spark and 

 all others similarly situated 

 

 Sharon L. Nelles 

 Richard C. Pepperman, II (Argued) 

 Sullivan & Cromwell 
 125 Broad Street 

 New York, NY 10004 

 and 

 Kathleen M. Jennings 

 Oberly & Jennings 

 800 Delaware Avenue - P.O. Box 2054 

 Wilmington, DE 19899 

 Attorneys for Appellees MBNA Corp., MBNA 

 America Bank, N.A., MBNA Marketing Systems, 

 Inc., Richard K. Struthers, Terrance R. Flynn, 

 David L. McGowan and Mark C. Sullivan 

 

 John J. Pentz (Argued) 

 The Objectors Group 

 43 Kendall Road 

 Sudbury, MA 01776 

 Attorney for Appellants Cophen E. Sears, III, 

 Alan Shapiro and Daniel J. Hill 

 

 OPINION OF THE COURT 

 

STAPLETON, Circuit Judge: 

 I. 

 On May 3, 1996, Andrew B. Spark filed a complaint against MBNA 

America Bank and certain of its officers and affiliated corporations. He alleged that the 

defendants had fraudulently and deceptively marketed a promotional rate of interest for 

the Bank’s credit card. The following summary of the ensuing proceedings, taken from 

the Defendant-Appellees Brief, accurately reflects the record: 

 . . .On February 20, 1998, the District Court granted 

 plaintiff’s motion to certify a class consistent of all persons 

 who: 

 a. were sent advertising by MBNA Corporation 

 promoting a special low introductory (6.9%- 

 9.9%) annual percentage rate on cash advances 

 and/or balance transfers; 

 b. opened a credit card account with MBNA; 

 and 

 c. used the card for purchases as well as cash 

 advances or balance transfers. 

 SA 7-8 (Class Cert. Order). The class period spanned from 

 May 3, 1991 through May 3, 1996. SA8. 

 After discovery and further motion practice, the 

 District Court directed the parties to mediation before 

 Magistrate Judge Thynge. . . . At the conclusion of the 

 second day of mediation, the parties successfully negotiated a 

 settlement agreement. . . . SA19 (Settlement Agmt.). 

 The parties agreed that the estimated 1.8 million class 
 members would each be entitled to receive $3.57, an amount 

 representing slightly more than half the average class 

 members’ alleged damages as calculated by plaintiff’s expert. 

 SA96 (Hearing Tr.). During the mediation, MBNA had taken 

 the position that all class members should be required to 

 submit a claim, and plaintiff had taken the position that every 

 class member should receive an automatic credit. SA68-69 

 (Pl.’s Mem.). As a compromise, Magistrate Judge Thynge 

 suggested, and the parties agreed, that class members with a 

 "current-active" account would receive an automatic credit 

 but that class members with a "current-not active" or "non- 

 current" account would be required to submit a claim either 

 by calling a toll-free telephone number or by returning a claim 

 form to MBNA. SA105 (Hearing Tr.). To recover $3.57, 

 "current-not active" and "non-current" class members need 

 not submit actual proof of a claim; they are required only to 

 identify themselves as a member of the class. During 

 mediation, MBNA estimated that approximately 80% of class 

 members had current accounts with MBNA and that, of those 

 accounts, approximately 80% (i.e., 64% of the class) were 

 active. SA106 (Hearing Tr.). 

 The parties further agreed that class counsel would 

 petition the District Court for $1,285,200 in fees and costs to 

 be paid by MBNA. SA22 (Settlement Agmt.). The parties 

 also agreed that plaintiff would receive $10,000 for his 

 services as class representative, also to be paid by MBNA. 

 SA22-23. 

 The parties appeared before the District Court for a 

 preliminary approval hearing on September 25, 2000. The 

 District Court found that the proposed settlement was in the 

 range of fair and reasonable, and directed that notice be sent 

 to the class. SA42-44 (Order). With regard to the 

 composition of the class, the forms of notice approved by the 

 District Court stated: 

 MBNA represents that, to the best of its 

 knowledge, there are approximately 1.8 million 

 members of the class. MBNA estimates that, of 

 those 1.8 million class members, approximately 

 80% have a current account with MBNA 

 (current class members), and approximately 

 20% do not have a current account with MBNA 

 (non-current class numbers). MBNA further 

 estimates that, of current class members 

 approximately 80% (64% of the total) of the 

 accounts are presently active (current-active 

 class members). 

 A21; SA30 40 (Form of Notice). 

 In March 2001, MBNA mailed notice of the settlement 

 to 1,838,957 potential class members by first class mail. 

 Class members who had account activity during the period 

 November 2000 through January 2001 were classified as 

 "current-active" class members. SA106-07. Those class 

 members received notice stating they will receive an 

 automatic credit of $3.57 to their account if the settlement is 

 approved. See SA31 (Form of Notice). The remaining class 
 members received notices stating that they will receive a 

 check for $3.57 if they submit a claim and the settlement is 

 approved. A21. Of those class members, 93,859 submitted a 

 claim by calling the toll-free telephone number or by 

 returning the claim form enclosed with the notice. A37 

 (Proposed Final Order). 

 As it turned out, only 41% of the class (754,960) had 

 account activity during the period November 2000 through 

 January 2001. A31; SA106 (Submitted Letter; Hearing Tr.). 

 This number was lower than MBNA had previously estimated 

 primarily because of the age of the class in this case, which 

 reached back to 1991. A31. When plaintiff complained that 

 less than 64% of the class would receive an automatic credit, 

 MBNA agreed also to give an automatic credit to 421,884 

 "current-not active" class members, thus ensuring that 64% of 

 the class will receive automatic credits. SA106. Those 

 421,884 class members were to be identified first by adding 

 those class members with account activity after January 2001, 

 and then, if necessary, adding those class members with the 

 most recent account activity before November 2000. Id. 

 The District Court held a fairness hearing on May 24, 2001. In its opinion 

the Court applied the nine factor test that we articulated in Girsh v. Jepson, 521 F.2d 153 

(3d Cir. 1975), and concluded that the proposed settlement was "fair, reasonable, and 

adequate." Spark v. MBNA Corp., 157 F. Supp.2d 330 (D. Del. 2001). It found the 

amount requested for attorneys’ fees and costs to be "unreasonably high," however, and 

awarded only $590,000 of the $1,285,200 requested. In commenting on the terms of the 

settlement, the Court observed as follows: 

 The court understands that in reaching an agreement on 

 what the settlement would be and how it would be 

 implemented, counsel and the parties had to make a number 

 of practical decisions, including how to economically and 

 efficiently distribute $3.57 to a class of 1.8 million people. 

 The procedure the parties fixed on, a credit for current and 

 active account holders and sending a check to others who call 

 in to a toll free number, reflects a fair and reasonable 

 balancing of a number of competing factors. Further, the 

 agreement to provide a credit to an additional 421,844 class 

 members reflects a reasonable compromise of the 

 disagreement that arose after it became clear that the number 

 of people who would receive the automatic credit was lower 

 than MBNA had initially reported to plaintiff. The 

 modification of the agreement appears to be consistent with 

 the spirit of the parties’ initial settlement agreement and 

 should prevent MBNA from benefitting from this error. 

157 F.Supp.2d at 340. 

 II. 

 Appellant/objectors Sears, Shapiro and Hill mount three challenges in their 

appeal: (1) the settlement does not provide similar relief to similarly situated class 

members, (2) the class notice was materially inaccurate and requires a corrective mailing, 

and (3) the manner in which class counsel handled the automatic credit issue 

demonstrates the inadequacy of their representation. 

 A. 

 These objectors do not maintain that the $3.57 to be received by all class 

members is unfair or unreasonable when considered in the light of the Girsh factors. 

Rather they insist: 

 . . . The parties’ agreement to give an automatic credit to only 
 some of MBNA’s current cardholders is arbitrary and unfair. 

 The parties’ last-minute agreement to give automatic credits 

 to 421,844 inactive current cardholders demonstrates that it is 

 indeed possible to give a credit to each and every one of them. 

 Therefore, every inactive current cardholder should receive an 

 automatic credit of $3.57, and should not be required to 

 submit a claim form. 

Appellants’ Brief p. 10. We are unpersuaded. 

 Under the terms of the original and amended settlement agreements, all 

members of the class are appropriately entitled to receive the identical award. The two 

methods of distributing those awards are neither arbitrary nor inequitable to those who do 

not receive an automatic credit. As the District Court found, the distribution methods 

chosen were directed to legitimate practical concerns and, most important of all, do not 

impose a significant burden on those whom these objectors characterize as the disfavored 

subclass. A toll free call in which one has only to identify oneself as a class member is 

not onerous. 

 MBNA guarantees monthly account statements only for cardholders with 

account activity during the preceding month. The settlement provides that those 

cardholders would receive automatic credit. This is the most efficient means of 

distribution to these cardholders and provides the recipient with what is likely to be a cash 

equivalent. The other class members are not similarly situated. In order to provide them 

with an automatic credit MBNA would be required to generate monthly statements for 

cardholders with no outstanding balance and with no recent activity. Statements would 

have to be issued monthly for six months, after which a check would have to be issued. 

Even if this additional expense were assumed, however, there is a legitimate concern that 

the recipients of those statements would conclude that they would have to use their 

MBNA credit card in order to realize the settlement proceeds. Given the recent inactivity 

in their accounts, the credit is unlikely to be a cash equivalent for them, and MBNA had a 

legitimate concern that such cardholders would think they were being manipulated into 

reactivating their accounts. Even under the amended agreement, automatic credits will be 

credited to those class members most likely to have outstanding balances against which 

the credit can be applied and to those who have most recently used their card. This did 

not result in an arbitrary distinction being drawn. 

 The objectors insist that the District Court erred in treating the "anticipated 

payment of $4.2 million as having some independent significance." Objs. Brief p. 16. 

We agree with appellees that this payout did have independent significance. Class 

counsel insisted that 64% of the class receive automatic credits, consistent with MBNA’s 

original estimate of the number of "current-active" cardholders in the class. When it 

turned out that only 41% of the class were "current-active" cardholders - and class 

counsel objected - MBNA agreed to provide additional automatic credits in a rational 

way. We decline the appellants’ invitation to fashion an across-the-board rule requiring 

that all settlements involving a "de minimis" pay out (i.e., "less than $10") to class 

members provide only for an automatic credit or disbursement. While employing a 

claims process in such settlements may result in unfairness in some contexts, it is not 

inherently inconsistent with a fair and reasonable settlement, as this case demonstrates. 

 B. 

 These objectors also argue before us that the notice to class members is 

materially misleading and was known to be such when dispatched. They point to the 

statement in the notice that MBNA estimated that 64% of the class were current active 

cardholders and would thus receive an automatic credit. These objectors stress the fact 

that this estimate was known to be an overestimate at the time of the mailing. 

 The District Court did not abuse its discretion. The notice accurately 

reports the fact that the settlement commits MBNA to give an automatic credit to all 

"current active" class members. Thus, any "current active" cardholder could count on 

receiving a credit. While MBNA learned, four months after the approval of the form of 

the notice but before its actual mailing, that its "estimate" of the number of "current 

actives" was too high, the failure to amend the notice was not materially misleading. 

When it was discovered that only 41% of the class were "current active" cardholders, the 
District Court permitted the parties to remedy the situation by providing an automatic 

credit to additional class members so that a total of 64% of the class would receive 

automatic credits. There thus was no material discrepancy between the notice and the 

settlement ultimately approved. Each class member who received a notice advising that 

he or she would receive an automatic credit will receive one and 64% of the class will 

receive such credits as the notice represented. The only difference is that some members 

who were told that they would have to submit a claim in order to receive payment will 

now receive an automatic credit. Accordingly, the modification of the agreement did not 

have an adverse effect on any class member. It follows that the difference between the 

settlement as described in the notice and the settlement as approved is not material. 

 C. 

 As suggested by the above, we find no deficiency in class counsels’ 

handling of the situation presented when MBNA’s original estimate of "current active" 

cardholders turned out to be too high. 

 III. 

 Appellant/objector Schoettle advances three additional arguments: (1) the 

requirement that objectors appear at the hearing violated due process, (2) the notice failed 

to provide a basis for a class member to determine his or her damages, and (3) the District 

Court abused its discretion in concluding that the settlement was fair and reasonable. 

 A. 

 The Due Process Clause requires that each plaintiff class member "receive 

notice plus an opportunity to be heard and participate in the litigation, whether in person 

or through counsel" and that he or she be afforded an opportunity to "opt out." Phillips 

Petroleum Co. v. Shutts, 472 U.S. 797, 812 (1985). Schoettle received this process. 

While considering written objections from absent class members has much to recommend 

it, given these and the other protections afforded members of a plaintiff class, we are 

confident that a court, consistent with due process, may require an objector to be present, 

in person or by counsel, to present his objections and respond to inquiries. 

 B. 

 Under the heading "What This Lawsuit Is About" (SA35), the notice states 

as follows: 

 Plaintiff filed this action alleging that MBNA’s 

 representations concerning the savings resulting from the 

 "special low introductory" interest rate on cash advances and 

 balance transfers in connection with credit cards issued by 

 MBNA were false and misleading because cardholders could 

 never or virtually never receive the advertised savings if they 

 use their cards for purchases. Plaintiff’s first amended 

 complaint alleges that MBNA’s practice violated the RICO 

 statute, constituted a breach of MBNA’s implied contractual 

 duty of good faith and fair dealing, and constituted a violation 

 of the Delaware Consumer Protection Statutes, 6 Del. C. 

 2513. 

In addition, the description of the class advises that those having claims (a) "were sent 

advertising by MBNA Corporation promoting a special low introductory (6.9%-9.9%) 

annual percentage rate on cash advances and/or balance transfers; (b) opened a credit card 

account with MBNA; and (c) used the card for purchases as well as cash advances or 

balance transfers, from May 3, 1991 through May 3, 1996." App. 75. 

 Schoettle insists that the information thus provided is insufficient to enable 

a class member to calculate the amount of his damages and is, therefore, insufficient to 

permit a determination as to whether $3.57 is fair and reasonable. 

 It seems to us that a class member with the information provided should be 

able to determine from his or her records the approximate amount of his maximum 

potential damages. Neither Rule 23 nor the Due Process Clause requires that the notice of 

settlement provide each member of the class with the kind of individualized information 

that would be found in a class member’s personal records. 

 C. 

 As we have indicated, the District Court’s opinion identifies the legally 

relevant factors and applies them to the facts of this case. Having considered the 
conclusions there reached in light of Shoettle’s challenges, we find no abuse of discretion. 

 IV. 

 The District Court’s Order of August 1, 2001, will be affirmed. _____________________

TO THE CLERK: 

 Please file the foregoing not precedential opinion. 

 

 /s/Walter K. Stapleton 

 ________________________________ 

 Circuit Judg