In Zimmerman v. Zwicker & Associates, — F.Supp.3d – (D.N.J. 2011), here, Judge Schneider rejected a propose class settlement arising from collection letters that purportedly violated the FDCPA on the basis that the settlement conferred a “phantom benefit” on the class.
The parties propose that in exchange for no payment, 800,000 consumers release all claims they could have asserted against the defendant “as a result of alleged violations of the Fair Debt Collection Act or any state law providing substantially similar protections.” The time period of the Release is August 6, 2008 to the date the preliminary approval Order is signed. If the parties’ proposed release language is approved it would lead to inequitable results because the class is not just releasing claims involving defendant’s form collection letter. For example, if a class member received defendant’s letter and defendant later threatened the consumer with violence if he or she did not pay, the claim would be barred because the settlement requires that every class member release his or her FDCPA claims. The same would be true if defendant mailed a class member a different threatening letter every day for over two years starting on August 6, 2008. In addition, pursuant to the proposed settlement if defendant mailed the class letters and later attempted to collect the debt through third-party contacts in violation of 15 U.S.C. §1692c(b), or threatened class members with arrest in violation of §1692e(4) and (5), the claims would be barred. The broad release the class must give to settle is unfair and unreasonable given the phantom benefit they receive. Further, the parties propose to release defendants from claims (i.e., state law claims) not asserted in the case. It is troubling that plaintiff did not include state law claims in her complaint because they could raise potential class certification problems (see July 8, 2010 Joint Letter Brief (“JLB”) at 2), yet state law claims are included in the parties’ release.¶ To be sure, a de minimis monetary recovery does not automatically bar a class action settlement. Mace v. VanRu Credit Corporation, 109 F.3d 338, 344 (7th Cir. 1997). Thus, the mere fact that the direct recovery to the class is de minimis (or more accurately non-existent), does not bar the settlement. Nonetheless, under the facts presented herein, the Court finds that it is not fair, reasonable and appropriate to foreclose hundreds of thousands of consumers from pursuing their FDCPA rights in exchange for nothing.