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Smith v. Professional Billing & Management Services

November 21, 2007


The opinion of the court was delivered by: Joel Schneider United States Magistrate Judge

[Doc. Nos. 16, 17]


This matter is before the Court on plaintiff's "Motion in Support of Settlement and Approval of Class Notice" [Doc. Nos. 16, 17].*fn1 For the reasons to be discussed, plaintiff's motion is GRANTED and the Court will enter an Order preliminarily approving the parties' settlement agreement as fair, reasonable and adequate, and conditionally certifying for settlement purposes, pursuant to Fed. R. Civ. P. 23(a) and 23(b)(3), the class defined in the parties' settlement agreement. The Court will also approve the proposed form and manner of service of the Notice of Proposed Class Action Settlement, Fairness Hearing, Final Settlement Approval and Distribution of Counsel Fees ("Notice"), and it will schedule a final hearing to determine if the settlement should be approved.


Plaintiff filed his Complaint on September 20, 2006. Plaintiff alleges that defendant Professional Billing & Management Services, Inc. ("PBMS") sent identical letters to him and other similarly situated individuals seeking to collect on medical bills that were unpaid (or underpaid) by insurance providers. Defendant Sandra Kireta Chilcote is the President of PBMS. Plaintiff contends that defendants violated the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. §1692, et. seq.*fn2 Plaintiff alleges the violations of the FDCPA subject the defendants to strict liability for statutory damages. Defendants deny liability. The proposed settlement class includes 2,449 natural persons who received defendants' collection correspondence in September 2006.

Pursuant to the parties' proposed settlement, each class member will receive $6.50, which equates to a total class payment of $15,918.50. Any class member suffering "actual damages" can opt-out of the settlement to pursue his or her own claim. The named plaintiff, Dean Smith, will receive $2,500 for filing the Complaint, rendering services on behalf of the class, meeting with counsel and participating in settlement discussions. Defendants have agreed to pay plaintiff's counsel fees and costs in an amount not exceeding $17,500. This sum is to be paid separately by the defendants and does effect or diminish the relief to the class. Plaintiff proposes to use defendants' mailing list to serve the class with the Notice, and service will be accomplished via United States first class mail, postage prepaid.


Judicial review of a proposed class action settlement is a two-step process: preliminary fairness approval and a subsequent fairness hearing. Jones v. Commerce Bancorp Inc., C.A. No. 05-5600 (RBK), 2007 WL 2085357, at *2 (D.N.J. July 16, 2007). See also Manual for Complex Litigation, §21.632 (4th ed. 2006). (Hereafter "MCL at "). In the first step of the process a court should make a preliminary evaluation of the fairness of the settlement before directing that notice be given to the settlement class. Id. at *2. The preliminary approval establishes an initial presumption of fairness when the court finds that: (1) the parties' negotiations occurred at arms length; (2) there was sufficient discovery; (3) the proponents of the settlement are experienced in similar litigations; and (4) only a small fraction of the class objected. In re General Motors Corp. Pick-Up Truck Fuel Tank Products Liability Litigation, 55 F.3d 768, 785 (3d Cir. 1995).*fn3 "Preliminary approval is not binding, and it is granted unless a proposed settlement is obviously deficient." Jones, supra at *2. Preliminary approval is appropriate where the proposed settlement is the result of the parties' good faith negotiations, there are no obvious deficiencies and the settlement falls within the range of reason. Id. (quoting In re Nasdaq Market-Makers Antitrust Litig., 176 F.R.D. 99, 102 (S.D.N.Y. 1997)). See also In re Insurance Brokerage Antitrust Litigation, MDL No. 1663, C. A. Nos 04-5184 (GEB), 05-1079 (GEB), 2007 WL 2589950, at *2 (D.N.J. Sept. 4, 2007) (granting preliminary approval to a class action settlement where there was arm's length negotiations, broad discovery and the settlement agreement was sufficiently fair, reasonable and adequate to warrant sending notice of the action and settlement to the class and holding a full hearing on settlement).

In addition to doing a preliminary evaluation of the fairness of the settlement in the first step of the judicial review process, it is also necessary to determine if class certification is appropriate. Amchem Products, Inc. v. Windsor, 521 U.S. 591, 621-22 (1997). In this context, some courts make only a preliminary determination that the proposed claims satisfy the criteria set out in Rule 23(a) and at least one of the subsections of Rule 23(b).

Insurance Brokerage, supra; MCL at §21.632 ("The judge should make a preliminary determination that the proposed class satisfies the criteria set out in Rule 23(a) and at least one of the subsections of Rule 23(b)"). Other courts make a final decision as to the appropriateness of class certification. See Jones, supra. In this Opinion the Court will address whether the proposed class should be preliminarily certified. The final certification decision will be addressed at the final hearing. Accordingly, for the purpose of deciding whether to grant preliminary approval of the parties' settlement, the Court will undertake to evaluate the fairness of the parties' settlement and whether class certification is appropriate.

The Fairness of the Proposed Settlement

The record plainly demonstrates that the fairness of the proposed settlement should be preliminarily approved. Counsel in this case are experienced class action litigators and there is no indication that they conducted anything other than arms length settlement negotiations. Furthermore, settlement occurred after plaintiff conducted sufficient discovery to determine that the benefits of the settlement outweighed the cost and risk of continued litigation. Plaintiff learned from discovery that the class consists of 2,449 individuals who each received the same mass mailing. Plaintiff also obtained various accountings of defendants' business and the sales agreement of PBMS which is relevant to determining the maximum potential damages available to plaintiff and the class under the FDCPA.

Although the ultimate relief to each class member ($6.50) will not be substantial, the Court finds that the settlement falls within the "range of reason" and is not "obviously deficient." This is true because pursuant to the FDCPA defendants' exposure for statutory damages is limited to one percent of its net worth or $500,000, whichever is less. 15 U.S.C. §1692k. Plaintiff points out there is uncertainty whether the value of defendants' business for the purpose of a penalty assessment is its fair market value($500,000) or "book value" (assets minus liabilities). Depending upon whether the book value estimate of plaintiff ($408,663) or defendants ($75,783) is used, one percent of any of these figures is less than the proposed $15,918.50 settlement. This certainly puts the parties' settlement within a reasonable range. The reasonableness of the settlement is buttressed by the fact that any member of the class who suffered "actual damages" can opt-out of the settlement.*fn4

Further, substantial authority exists for the payment of an incentive award to the named plaintiff. Varacallo v. Massachusetts Mut. Life Ins. Co., 226 F.R.D. 207, 257 (D.N.J. 2005). Since the named plaintiff performed considerable work that conferred benefits on the entire class, he deserves to be appropriately compensated. Id. at 258-59; In re Insurance Brokerage Antitrust Litigation, ...

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