4th Cir. Affirms Certification of Rule 23(b)(2) Settlement Class Where Mandatory Release of FCRA Statutory Damages Claims Incidental to Agreed Injunctive Relief

In Berry v. LexisNexis Risk and Information Analytics Group, Inc., et al., the U.S. Court of Appeals for the Fourth Circuit affirmed the certification of a class pursuant to Federal Rule of Civil Procedure 23(b)(2) and the settlement of class claims under the Fair Credit Reporting Act, 15 U.S.C. §§ 1681, et seq. (the “FCRA”), wherein the defendant would provide injunctive relief, while releasing all class member’s claims for statutory damages.

Rejecting the arguments of several objectors to the class and the settlement, the Court determined that plaintiffs’ statutory damages claims were “not the kind of individualized claims that threaten class cohesion.”  Op. at p. 18.  Noting that individual class members retained the right to pursue any FCRA claim for actual damages, the Court agreed with the trial court that plaintiffs’ statutory damages claims were “incidental” to the injunctive relief provided, which was indivisible and benefitting all members of the Rule 23(b)(2) class.  See id. at pp. 17, 18.

Moreover, the Fourth Circuit expressly rejected any argument that certain dicta in the U.S. Supreme Court’s opinion in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), demanded that due process requires opt-out provisions in a Rule 23(b)(2) class.  Rather the Court re-affirmed the Fourth Circuit’s precedent of permitting certification of mandatory Rule 23(b)(2) classes involving monetary relief so long as such relief is “incidental” to the injunctive or declaratory relief sought.  See Op. at p. 24.

A copy of the opinion is available here.  

Background

Defendants, including several related corporations (for convenience, “Defendants”) collectively serve as a data broker that sells identity reports used to locate people and assets, authenticate identities, and verify credentials (“Identity Reports”).  For years, Defendant issued Identity Reports without complying with the FCRA on the theory that such reports were not “consumer reports” that trigger the Act’s provisions.  Eventually, in 2011, several individuals who were the subject of Identity Reports filed a class action lawsuit against Defendant, claiming, inter alia, that Defendant violated the FCRA “by selling [Identity Reports] without first ensuring that buyers were purchasing the reports for uses permitted by the FCRA.”  Op. at p. 10.  Plaintiffs sought both actual and statutory damages, but did not seek injunctive relief, as the FCRA does not provide for such remedy.

Over one-year later, after months of discovery and a series of negotiations with the aid of several “highly skilled” mediators, the parties reached a settlement agreement (the “Agreement”), which included a two certified classes, one of which was certified under Federal Rule of Civil Procedure 23(b)(2) (the “(b)(2) Class”).  The (b)(2) Class included all individuals about whom the Defendant’s database contained information from November 2006 to April 2013, amounting to “roughly 200 million people.”  Op. at p. 11.  Under the Agreement, the (b)(2) Class members would retain their rights to seek actual damages, though they would release any claim for statutory damages, as well as punitive damages.  See id.  In exchange, the (b)(2) Class members would receive injunctive relief – that is, “a fundamental change in the product suite that [Defendant] offers the debt-collection industry that will result in a significant shift from the currently accepted industry practices.”  Id. (internal citations omitted).

The trial court granted the parties’ joint motion for preliminary certification of the (b)(2) Class for settlement purposes.  Several Objectors filed motions challenging certification.  The trial court ultimately certified the (b)(2) Class and approved the Agreement, and the Objectors appealed.

Discussion

On appeal, the Fourth Circuit affirmed the certification of the proposed (b)(2) Class for settlement purposes.  The appellate court noted that, absent a “clear abuse of discretion,” it would give the trial court “substantial deference,” recognizing that a “district court possesses greater familiarity and expertise than a court of appeals in managing the practical problems of a class action.”  Op. at pp. 14-15 (citing Ward v. Dixie Nat’l Life Ins. Co., 595 F.3d 164, 179 (4th Cir. 2010)).

Under Rule 23(b)(2), certification of a class is permitted where “the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole.”  Op. at p. 16 (citing Fed. R. Civ. P. 23(b)(2)).  A Rule 23(b)(2) class is assumed to be “a homogenous and cohesive group with few conflicting interests among its members,” such classes are “mandatory,” in that “opt-out rights” for class members are not provided.  Op. at pp. 16-17 (citing Allison v. Citgo Petroleum Corp., 151 F.3d 402, 413 (5th Cir. 1998)). 

Although Rule 23(b)(2) certification is inappropriate where monetary relief predominates, see Op. at p. 17 (citing Thorn v. Jefferson-Pilot Life Ins. Co., 445 F.3d 311, 331-32 (4th Cir. 2006)), such classes may be certified where monetary relief is “incidental” to the injunctive or declaratory relief.  Op. at p. 17 (Allison, 151 F.3d at 415 413).

Here, several Objectors contested the certification of the (b)(2) Class, claiming that the statutory damages waived under the Agreement predominate over the injunctive relief awarded and are not “incidental” to such relief.  See Op. at p. 18.  Although the Court noted that there are individualized monetary damages claims at issue (i.e., those for actual damages under the FCRA), it emphasized that class member’s retained their rights to seek such damages.  Op. at p. 19.  However, with statutory damages under the FCRA, “what matters is the conduct of the defendant,. . . . which, as the district court emphasized, ‘was uniform with respect to each of the class members.’”  Op. at pp. 18-19.  Agreeing with the trial court, the Fourth Circuit concluded that the “meaningful, valuable injunctive relief” afforded by the Agreement is “indivisible,” “benefitting all members” of the (b)(2) Class at once. . . .  And the statutory damages claims released under the Agreement are not the kind of individualized claims that threaten class cohesion and are prohibited by Dukes.”  Op. at p. 18 (citing Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011)).

Although Objectors contended that statutory damages are not “incidental” because Plaintiffs’ original complaint did not seek any injunctive relief under the FCRA, the Court rejected such argument.  See Op. at pp. 20-23.  Although the FCRA does not provide for injunctive relief, the Fourth Circuit agreed with the trial court that, “[i]n the settlement context, ‘it is the parties’ agreement that serves as the source of the court’s authority to enter any judgment at all.’”  Op. at p. 20 (citing Local Number 93 v. City of Cleveland, 478 U.S. 501, 522 (1986)).  Likewise, Plaintiffs’ failure to seek injunctive relief in the original complaint does not independently preclude certification under Rule 23(b)(2).  Rather, by its express terms, Rule 23(b)(2) apples so long as “final injunctive relief . . . is appropriate respecting the class as a whole.”  Op. at p. 22 (emphasis in opinion); but see Op. at pp. 22-23 (explaining that Rule 23(b)(2) may preclude certification of a class when injunctive relief is “illusory” or “may only to justify a damages award that otherwise would be improper under Rule 23(b)(2)”).

Alternatively, relying on dicta in the Dukes decision that noted the “serious possibility” that due process requires opt-out rights, the Objectors asserted that the principles of due process precludes certification of the (b)(2) Class without opt-out rights.  See Op. at p. 23 (citing Dukes, 131 S. Ct. at 2559).  Again, the Fourth Circuit disagreed, explaining that federal courts have long permitted certification of mandatory Rule 23(b)(2) classes involving monetary relief so long as such relief is “incidental” to the injunctive or declaratory relief sought.  See Op. at p. 24.  In the context of Rule 23(b)(2) class certification, because the relief sought is uniform, so are the interests of class members, making class-wide representation possible and opt-out rights unnecessary.  Op. at pp. 25-26 (citing Dukes, 131 S. Ct. at 2558; Thorn, 445 F.3d at 330 & n.25; Allison, 151 F.3d at 413-14).  Again, the Fourth Circuit favorably noted that class members retain their right to pursue actual damages under the FCRA.  See Op. at pp. 26-27.

Next, the Objectors complained that the class settlement was “unfair and inadequate because it releases class members’ statutory damages claims without providing for any monetary relief in exchange.”  Op. at p. 30.  However, the trial court deemed the case to be “speculative at best,” which the Fourth Circuit characterized as a “generous” description.  Op. at p. 32.  Notably, “with agency guidance expressly specifying that [the subject] reports are not subject to the FCRA, . . .it is hard to see how [Defendant] can be said to have acted unreasonably by adopting that reading.”  Op. at pp. 32-33.  Moreover, the trial court described the injunctive relief as a “significant shift” in industry practices, making [Defendant] “the industry leader” in consumer-information protection.  Id. at p. 33.  Indeed, the Fourth Circuit observed that the record included a finding that the injunctive relief “provided consumers with benefits so substantial that their monetary value is in the billions of dollars.”  Id.

Finally, as to one Objector’s challenge to the approval of class counsel’s fees for securing injunctive relief, amounting to approximately $5.3 million, the Fourth Circuit found no reversible error.  Acknowledging that the trial court’s discussion of the fee award was brief, the Fourth Circuit noted that the trial court did provide a sufficient basis for such award: “that class counsel ‘expended large amounts of time and labor,’ and ‘achieved an excellent result in this large and complex action.’” Op. at p. 39 (citing Berry v. LexisNexis Risk & Info. Analytics Grp., Inc., No. 3:11-CV-754, 2014 WL 4403524, at *15 (E.D. Va. 2014)).

Accordingly, the Fourth Circuit affirmed the decision of the trial court in its entirety.

Md. App. Holds that Trustees’ Lack of Physical Presence (as Opposed to Constructive Presence by Telephone) At Auction Does Not Invalidate Foreclosure Sale

In Fisher v. Ward, a majority of a panel of the Court of Special Appeals of Maryland affirmed the trial court’s ratification of a foreclosure sale, determining that the trustee’s constructive presence by telephone, rather than “in-person” presence at the foreclosure auction, did not warrant invalidating the sale absent a showing of prejudice.   Rather, the “absence of the trustee from the sale is merely a circumstance to be considered by the court in the ultimate determination of the fairness of the proceedings.”  Op. at 8.  “Absent other irregular factors,” the intermediate appellate court concluded, “‘presence’ by telephone did not create unfairness or prejudice to [the borrower] to warrant reversal…”  Op. at 10.

A copy of this opinion is available here.

Background

Following Borrower’s default on her mortgage payments, the lender appointed Trustees to begin foreclosure proceedings.  At the sale, although none of the Trustees were physically present, one Trustee monitored the sale and was connected by cell phone to the auctioneer, who was at the sale.   Auctioneer announced the initial bid, which the Trustee had offered via telephone, on behalf of the lender, which was conceded to be more than the fair market value of the property.  Op. at 3.  Borrower filed exceptions to the sale, claiming that the sale was unlawful because no Trustee was physically present, and that the report of sale incorrectly represented that the Trustee had directed and supervised the auction.      

In response, Trustees asserted that the constructive presence of the trustee was sufficient to satisfy the “presence” requirement, and that Borrower suffered no prejudice from the alleged irregularity.   The trial court overruled the Borrower’s exceptions, and Borrower appealed.

Discussion

Although the Court of Special Appeals determined that “ancient” precedent required a trustee to attend the sale, Op. at 6-7 (citing Hopper v. Hopper, 79 Md. 400 (1894)), the Court observed that case law “condoned, if not actually permitted” the concept of constructive presence.  Op. at 7 (discussing Wicks v. Westcott, 59 Md. 270 (1883)).   Thus, “absence of the trustee from the sale is merely a circumstance to be considered by the court in its ultimate determination of fairness of the proceedings.”  Op. at 8. 

“[W]hat is sufficient to constitute constructive presence will depend on the facts before the court.”  Op. at 8.  On the record of this appeal, the Court deemed the Trustee “readily accessible” throughout the sale via the auctioneer’s cell phone, and concluded that “[a]ny problems or concerns could have easily been addressed.”  Op. at 8-9.   Notably, the proceedings were “brief and uncluttered,” no competing bids or questions to the auctioneer were presented, and no objections were made by persons in attendance.  Op. at 8.  Consequently, the Court was satisfied that the Trustees satisfied the requirement that the “property [be] sold under such conditions and terms as to the advertisement and otherwise, as a prudent and careful man would employ, seeking to obtain the best price for his own property.”  Op. at 9 (citations omitted).

Moreover, the ratification of a foreclosure sale is presumed to be valid.  Op. at 9.  Although the burden is on an excepting party to show prejudice caused by any irregularities in the sale, there is also a heightened scrutiny of the sale when the foreclosure sale purchaser is the mortgagee or his assignee.  Op. at 9-10.  “Despite the heightened standard, the burden continues to be borne by the excepting party to show both invalidity and resulting prejudice.”  Op. at 10.  In this case, the Borrower’s challenge was based solely on the “absentee participation” of the Trustee in the sale itself; no assertion of irregularity was asserted to any other aspect of the proceeding, and there was no challenge to the sufficiency of the price.   Op. at 10.  “Absent other irregular factors,” the Court concluded that, although required, the Trustee’s “presence” at the sale by telephone did not create unfairness or prejudice to Borrower to warrant reversal of the foreclosure judgment.  Op. at 10.  Accordingly, the appellate court affirmed the judgment of the trial court.  Op. at 10.

In a concurring opinion, one judge agreed there was no prejudice, and therefore that reversal was not appropriate.   Concurring Op. at 5.  However, according to the concurring judge, “the failure of a trustee (or an empowered and properly supervised delegate) to physically attend the sale remains an irregularity in the sale, which, should it result in actual prejudice, would be fatal to the sale.”  Concurring Op. at 1.

Md. Holds Garageman’s Lien Does Not Include Lien Enforcement Costs Where Owner Redeems Vehicle Prior to Sale

In Allstate Lien & Recovery Corp. v. Stansbury, the Court of Appeals of Maryland determined that a “garageman’s lien” on a vehicle does not include “lien enforcement costs” or “costs of process” if the lien is redeemed prior to the non-judicial sale of the vehicle. 

Rather, the Court determined that the plain language of the applicable statute, Maryland Code, Comm. Law § 16-202(c), only provides for a garageman’s lien to include costs for repairs, rebuilding, storage, and tires or accessories.   Recovery of such costs was only appropriate after the vehicle was actually sold, where they could be authenticated, or alternatively, in a replevin proceeding or other judicial action, where the amount owed for enforcement costs would be subject to judicial scrutiny.

A copy of this opinion is available here.

Background

Following an automobile accident, Owner left his vehicle to a Repair Shop for servicing and repairs.  Four months later, due to a delay in obtaining certain parts, Repair Shop notified Owner that the repairs were complete and presented a bill.  Upon Owners failure to retrieve the vehicle and pay the bill, Repair Shop sent Owner a notice that the vehicle would be sold, listing $6,630.37 in repair charges as well as a $1,000 “cost of process” fee. Ultimately, the vehicle was sold at auction.

Owner sued Repair Shop, and several other parties, alleging violation of several consumer protection laws and common law theories challenging, among other things, the right to collect the amounts claimed by the Repair Shop. 

Owner argued that the text of Maryland Code, Comm. Law § 16-202(c), which provided for the Repair Shop’s “garageman’s lien” on the vehicle, did not permit recovery of the $1,000 processing fee where the vehicle was redeemed prior to the sale.  The trial court agreed, and after it instructed the jury as a matter of law that the “$1,000 processing fee is not an appropriate part of the lien,” the jury returned a verdict for Owner.

The intermediate appellate court affirmed, and the Court of Appeals granted certiorari to consider whether a lien and recovery company hired to execute a garageman’s lien could include its lien "enforcement costs and expenses for executing the lien" as part of the amount necessary to redeem the vehicle.  Op. at 1 n.2.

Discussion

As an initial matter, the Court explained that a garageman’s lien is “an ex parte, prejudgment creditor’s remedy”, Op. at 15, which is provided for under Maryland Code, Comm. Law § 16-202(c).   Based upon the plain language of the statute, the Court determined that “[a] processing fee is not included as part of the lien.”  Op. at 18 (quotations omitted).  Rather, Section 16-202(c) provides:

(c)  Motor vehicle lien. – (1)  Any person who, with the consent of the owner, has custody of a motor vehicle and who, at the request of the owner, provides a service to or materials for the motor vehicle, has a lien on the motor vehicle for any charge incurred for any:

(i)  Repair or rebuilding;
(ii)  Storage; or
(iii)  Tires or other parts or accessories.

(2)  A lien is created under this subsection when any charges set out under paragraph (1) of this subsection giving rise to the lien are incurred.

Md. Code, Comm. Law § 16-202(c).

Consequently, the Court explained “the basic premise presented in our garageman’s lien statutory scheme is that costs incurred by the repair company to sell the vehicle subject to a garageman’s lien, can only be recovered from the proceeds of the actual sale of the vehicle, when actual expenses for lien enforcement costs were known and could be authenticated.” Op. at 22. 

The Court noted that alternatively, such costs may be recovered where an owner filed a replevin action to recover possession of the vehicle or posted a bond to stay a sale, subject to a judicial action.  However, in either circumstance, “the amount owed for enforcement costs incurred, not the subject of a lien established under Section 16-202(c), would be subject to judicial scrutiny for reasonableness, at the least.”  Op. at 22.

The Court posited that a different interpretation of the statute would permit a repair company to demand any amount for lien enforcement costs prior to an ex parte sale, thereby inhibit vehicle owners from redeeming their vehicles.  Op. at 22-23. 

Accordingly, the Court concluded that “a garageman’s lien includes charges incurred for ‘repair or rebuilding, storage, or tires or other parts or accessories’, but does not encompass lien enforcement costs or expenses or cost of process fees prior to sale, should the owner attempt to redeem the vehicle before sale.”  Op. at 23.