On January 25th, the Ninth Circuit Court of Appeals partially reversed and remanded a Fair Debt Collection Practices Act (FDCPA) settlement against debt collector ARS National Services, Inc. (ARS) over voice messages left on class members' voicemail, criticizing a magistrate judge for approving a settlement that forfeited 4 million members' rights to pursue future class claims in exchange for “worthless injunctive relief.”

The case is Koby v. ARS National Service, Inc. (United States Court of Appeals for the Ninth Circuit, Case No. 13-56964, District Court Case No. 3:09-cv-00780-KSC). The case has been ongoing for several years; insideARM first reported about it in August 2010.

A copy of the opinion can be found here


The underlying theory of the original lawsuit was a claim under the FDCPA that voice messages left with consumers failed to “meaningfully disclose” the identity of the collector. They alleged that ARS violated §§ 1692d(6) and 1692e(11) of the FDCPA by leaving voicemail messages in which the callers failed to disclose (1) that they worked for ARS, (2) that ARS is a debt collector, or (3) that the purpose of the call was to collect a debt.

The specific voice message left with named plaintiff Koby was as follows:

“This is Robin calling for Michael Koby, if you could please return my call at 800-440-6613. My direct extension is 3171. Please refer to your Reference Number as 15983225.”

There were three named plaintiffs. The other named plaintiffs received similar messages.

The named plaintiffs brought the action on behalf of everyone in the United States who received a voicemail message from ARS which failed to disclose that information. The class consists of some four million people nationwide.  

In August 2011, after the district court denied ARS’s motion to dismiss the case on the pleadings, the parties began discussing settlement. Over the course of more than a year, the parties engaged in settlement discussions with the assistance of a magistrate judge. The named plaintiffs and ARS eventually consented to having the same magistrate judge conduct all further proceedings in the case, including the entry of final judgment. The district court entered an order authorizing the magistrate judge to exercise jurisdiction over the case, and she presided over all further proceedings.

In January 2013, following a full-day mandatory settlement conference before the magistrate judge, the parties finally hammered out a deal. Under the terms of the settlement, the parties agreed to seek certification of a nationwide, settlement-only class under Federal Rule of Civil Procedure 23(b)(2).

The proposed class consisted of everyone in the United States who between April 2008 and August 2011 received a voicemail message from ARS that failed to identify ARS as the caller, disclose that the call was from a debt collector, or state that the purpose of the call was to collect a debt. (The parties chose those dates because April 2008 is the beginning of the applicable statute of limitations period and ARS ended the alleged FDCPA violations in August 2011, when it adopted the new voicemail message.) Because the class would be certified under Rule 23(b)(2), the parties agreed that no notice of any kind would be sent to the four million class members and that no one would be permitted to opt out of the class.

ARS agreed to pay each of the three named plaintiffs $1,000, the maximum they could hope to recover under the FDCPA as none of them had suffered any actual damages. ARS represented to the court (although it is unclear whether the magistrate judge took any steps to verify this fact) that its net worth was only $3.5 million, which meant the other four million class members could collectively recover no more than $35,000. Given the impossibility of distributing less than a penny to each member of the class, ARS agreed to make a $35,000 cy pres award to a local San Diego charity instead. ARS also agreed to pay class counsel the negotiated sum of $67,500 in attorney’s fees.

The four million unnamed class members received no monetary compensation under the settlement. They are, however, the beneficiaries of a stipulated injunction to be entered against ARS. The injunction requires ARS to continue using, for a period of two years, the new voicemail message it had adopted back in August 2011. In return, the four million class members forfeited the right to seek damages from ARS as part of a class action. The class members retained the right to pursue damages claims against ARS on an individual basis.

The four million class members did not receive individual notice of the proposed settlement, but one class member—the appellant in this case, Bernadette Helmuth—filed an objection. She is the named plaintiff in a separate class action against ARS pending in the district court for the Southern District of Florida. Her lawsuit alleges essentially the same FDCPA violations alleged in this case, except that she seeks certification of a much smaller class limited to Florida residents who owed money to a particular creditor on whose behalf ARS was attempting to collect.

After the parties agreed to the settlement in this case, ARS asked the district court in Florida to stay all further proceedings in Helmuth’s case on the ground that, if approved, the settlement would bar her case from proceeding as a class action. The district court in Florida agreed to stay Helmuth’s action pending final approval of the settlement.

The Ninth Circuit Opinion

The Opinion leads off with the following description of the appeal: 

“The magistrate judge in this case approved a class action settlement in which the named plaintiffs and class counsel got what they wanted but the remaining four million class members got worthless injunctive relief. In exchange for receiving nothing of value, the class members gave up their right to assert damages claims against the defendant in any other class action. We are asked to decide two issues: whether the magistrate judge had the authority to exercise jurisdiction without obtaining the consent of all four million class members; and, assuming we get past that issue, whether the magistrate judge abused her discretion by approving the settlement as fair, reasonable, and adequate.”

The court then spent the bulk of the opinion criticizing the magistrate’s decision:

“The magistrate judge abused her discretion by approving the settlement in this case. The settlement should not have been approved for one primary reason: There is no evidence that the relief afforded by the settlement has any value to the class members, yet to obtain it they had to relinquish their right to seek damages in any other class action.

The settlement’s injunctive relief is worthless to most members of the class because it merely dictates the disclosures ARS must make in future voicemail messages for a period of two years. That relief could potentially benefit class members who are likely to be contacted by ARS during the two-year window, but there is an obvious mismatch between the injunctive relief provided and the definition of the proposed class. The class was not defined to include those who are likely to be contacted by ARS in the future; it was defined to include those who had suffered a past wrong at ARS’s hands—receiving a voicemail message between 2008 and 2011 that did not disclose certain information about the caller and the purpose of the call. The fact that a class member was a target of collection efforts sometime between 2008 and 2011, however, does not without more establish that he or she would likely be contacted by ARS again after October 2013, when the settlement was approved.

Because the settlement gave the absent class members nothing of value, they could not fairly or reasonably be required to give up anything in return. Yet the settlement requires absent class members to relinquish their right to pursue damages claims against ARS as part of a class action.

The fact that class members were required to give up anything at all in exchange for worthless injunctive relief precluded approval of the settlement as fair, reasonable, and adequate under Rule 23(e)(2).”

insideARM Perspective 

The most interesting aspect of this case is not the Ninth Circuit’s admonition of the magistrate’s earlier decision. It is the voice message that led to this case being filed in the first place, leading to extended litigation and attorney fee expense for over six years. The voicemail in question that was left by ARS is the same type of message that is currently being recommended by the Consumer Financial Protection Bureau (CFPB) in its Outline of Proposed Rulemaking, issued in July 2016. 

On July 28, 2016 insideARM wrote about the CFPB proposed voicemail message.

“The Bureau is considering a proposal that would provide that no information regarding a debt is conveyed — and no FDCPA “communication” occurs — when collectors convey only: (1) the individual debt collector’s name, (2) the consumer’s name, and (3) a toll-free method that the consumer can use to reply to the collector. For example, a voicemail could state, “This is John Smith calling for David Jones. David, please contact me at 1-800-555-1212.

The CFPB's rationale for this proposal:

“Many collectors (currently) believe that, under the FDCPA, they may not be able to leave voicemails or other messages for consumers because the FDCPA requires them to leave information identifying themselves as a collector and provide certain warnings to the consumer. If such content is seen or heard by a third party, however, that would risk violating FDCPA prohibitions against revealing debts to third parties. As a result, when consumers do not answer collections calls, some debt collectors simply hang up and call back, repeating this process until the consumer picks up the call. This may result in consumers receiving many more collection calls than they presumably would if debt collectors could leave a simple message.”

If ultimately adopted, this proposal would appear to provide a “safe harbor” for collectors to leave messages, reduce frivolous litigation over the content of voice messages, and encourage more communication with a consumer. Interestingly, the CFPB's proposed message is not the one produced by either the famous Foti case or the Zortman case.

Six years in the making, this case is the poster child for the seemingly endless supply of “voicemail message” lawsuits. The ARM industry has been in a No Win situation for years. Leave messages? Don’t leave messages? Foti? Zortman? insideARM has written extensively on the “Catch 22” nature of the issue. See:  here or here or here. There was always another new theory and another new case. 

Let’s hope the CFPB rulemaking puts an end to these lawsuits.

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