circseal2.jpgBy Gerald L. Maatman, Jr. and Scott Pearson

Although defendants often settle class actions to “buy peace” through class-wide releases, it is well-established that class releases will not be enforced in certain situations, such as when notice to the settlement class is deemed inadequate. In Hecht v. United Collection Bureau, 2012 U.S. App. LEXIS 17374 (2d Cir. Aug. 17, 2012), the Second Circuit recently highlighted that risk, finding that a class settlement did not bar a subsequent claim under the federal Fair Debt Collection Practices Act (“FDCPA”) because notice of the settlement solely through a single advertisement in USA Today was insufficient. Although the settlement class was settled under Fed. R. Civ. P. 23(b)(2), which does not require notice in its text, the Second Circuit determined that certification under Rule 23(b)(2) “does not excuse the due process requirement that unnamed class members in a class action predominantly for money damages receive the best practicable notice.” Id. at * 6. As a result, the Second Circuit reversed the district court’s dismissal of Hecht’s FDCPA claim, vacated the dismissal of her Connecticut Unfair Trade Practices Act claim, and remanded for further proceedings.

While the general principle reiterated in Hecht is not new, the Second Circuit’s analysis of how much notice was required to satisfy due process in the context of a class action settlement is a primer for employers and their counsel in crafting sound notice programs to achieve finality and peace from further litigation.

Facts At Issue In The Second Circuit’s Ruling

Chana Hecht was a member of a nationwide class that was certified for settlement purposes by the U.S. District Court for the Eastern District of New York in a case against United Collection Bureau Inc. for alleged violations of the FDCPA. The case was Gravina v. United Collection Bureau Inc., No. 09-CV-4816 (E.D.N.Y.). Notice of the class action settlement was provided via a single advertisement in USA Today, which Hecht claimed was insufficient. As a result, she brought suit separately, alleging the same violations of the FDCPA as the settlement class in the Gravina litigation. The district court dismissed the claim, concluding that it was barred by the doctrine of res judicada.

On appeal, Hecht contended that the doctrine would normally bar her claim, but that binding her to the settlement would violate due process because the notice provided in the class action settlement was constitutionally inadequate. The Second Circuit agreed. It concluded that she had a due process right to notice, despite the miniscule monetary recovery available in the settlement of the class action (as roughly $13,000 was to be divided among approximately 2 million class members).

Citing Phillips Petroleum Co. v. Shutts, 472 U.S. 797 (1985), the Second Circuit reasoned that absent class members have a due process right to notice and an opportunity to opt out of a class action when the class action is predominantly for money damages,  After determining that Hecht had a right to due process, the Second Circuit analyzed to whether the notice satisfied those requirements. The Second Circuit found that it did not, for a single advertisement was not “the best practicable” notice as required under Shutts. Id. at *7.

Implications For Employers

Though not a workplace class action, the Second Circuit’s ruling in Hecht is well worth a read. It is a cautionary tale of why it is counter-intuitive to skimp on notice programs, as the reason to enter into the class-wide settlement is to secure a class-wide bar based on res judicata principles.

A more thorough analysis of Hecht is contained in our One Minute Memo of today, which can be accessed here.