Hecht v. United Collection Bureau, Inc.

691 F.3d 218

Chana HECHT, Plaintiff–Appellant,

v.UNITED COLLECTION BUREAU, INC., Defendant–Appellee.

Docket No. 11–1327.

United States Court of Appeals, Second Circuit.

Argued: March 28, 2012.

Decided: Aug. 17, 2012.

Brian Wolfman, Institute for Public Representation (Lawrence Katz, Esq., Cedarhurst, N.Y., on the brief), Washington, D.C., for Plaintiff–Appellant.

Barry Jacobs, Abrams, Gorelick, Friedman & Jacobsen, P.C. (Shari Sckolnick, on the brief), New York, N.Y., for Defendant–Appellee.

Before: WALKER, STRAUB, and POOLER, Circuit Judges.

POOLER, Circuit Judge:

Chana Hecht appeals from a judgment of the United States District Court for the District of Connecticut (Kravitz, J.), dismissing her claim under the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692 et seq., as precluded by a judgment in a prior class action, Gravina v. United Collection Bureau, Inc., No. 09 Civ. 4816 (E.D.N.Y. Nov. 29, 2010). Hecht does not dispute that the doctrine of res judicata would normally bar her claim, but she argues that binding her to the Gravina settlement order would violate due process because the notice of class certification and settlement provided to absent Gravina class members was constitutionally inadequate. The parties dispute the extent of Hecht's due process notice rights and whether the manner of providing notice—publication of the notice in a single issue of USA Today—satisfied due process. We hold that the prior judgment in Gravina does not bar Hecht's claim because Hecht had a due process right to notice and the USA Today notice did not satisfy due process requirements.

BACKGROUND

I.

Hecht filed suit against United Collection Bureau, Inc. (“UCB”), alleging that UCB, a debt collector, violated the FDCPA by “plac[ing] telephone calls without meaningful disclosure of the caller's identity,” 15 U.S.C. § 1692d(6), and by failing to disclose in its initial communication “that the debt collector [wa]s attempting to collect a debt and that any information obtained w[ould] be used for that purpose,” id. § 1692e(11). UCB moved to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure. UCB argued that Hecht's suit was precluded under the doctrine of res judicata because Hecht alleged facts and violations already litigated, settled, and disposed of by a final judgment of the United States District Court for the Eastern District of New York in Gravina.

II.

In support of its motion, UCB provided documents from the Gravina litigation. It is undisputed that the FDCPA claim of the Gravina plaintiffs was materially identical to that of Hecht. The Gravina complaint requested maximum statutory damages, a declaration that UCB had violated the FDCPA, and all other just and proper relief.

UCB and the Gravina plaintiffs executed a Stipulation of Settlement detailing a proposed resolution of the suit. In the stipulation, UCB represented that it estimated that a pool of more than two million potential class members existed, but that it was impractical to calculate the precise number. The stipulation noted that this information was subject to confirmatory discovery, but the record before us does not say whether that discovery took place and, if so, to what result. UCB stipulated to class certification under Rule 23(b)(2) of the Federal Rules of Civil Procedure, which authorizes certification of a class where “final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole.” Fed.R.Civ.P. 23(b)(2).

The Gravina Court certified the (b)(2) class and preliminarily approved the settlement per the parties' stipulation. With the court's approval, the parties published a notice, purporting to inform absent class members both of the class action and of the proposed settlement, in the Monday edition of USA Today, a newspaper with national distribution, on September 20, 2010.

On November 29, 2010, the Gravina court issued a final order approving of the settlement (“Settlement Order”). The Settlement Order defines the “Settlement Class” as

all persons with addresses in the United States of America who received a message left by [UCB] on a telephone answering device which did not identify [UCB] itself by name as the caller, state the purpose or nature of the communication, or disclose that the communication was from a debt collector and which message was left after one-year immediately preceding the filing of the initial complaint up through and including the date of [the Settlement] Order.

The Settlement Order provided damages and injunctive relief in accordance with the parties' stipulation. Each named class representative received $1,000, the maximum recovery allowed under the FDCPA for named class representatives, see15 U.S.C. § 1692k(a)(2)(B)(i), as well as $1,500 “in recognition for their services to the Settlement Class Members.” The Settlement Class was awarded $13,254, 1% of UCB's net worth, the maximum amount available under the FDCPA for unnamed class members. See15 U.S.C. § 1692k(a)(2)(B)(ii) (providing that maximum damages amount for unnamed class members, in the aggregate, is “the lesser of $500,000 or 1 per centum of the net worth of the debt collector”). This amount was to be distributed to a national charitable organization as a cy pres payment. Class counsel was awarded up to $90,000 in fees and costs as provided for by the parties' stipulation. Finally, the Settlement Order permanently enjoined UCB to “use its best efforts to ensure that it meaningfully identifies itself [in all telephone voice messages] by stating its company name as the caller, accurately stating the purpose or nature of the communication, and disclosing that the communication is from a debt collector.” The Settlement Order also noted that the court had held a hearing to allow an opportunity for objections to the settlement, and no objector had appeared.

III.

In opposing dismissal, Hecht did not dispute that she was included in the Gravina Settlement Class definition, nor did she dispute that she had not attempted to opt out of the Gravina settlement, to ask the Gravina court to reconsider its Settlement Order, or to appeal the Settlement Order. Instead, Hecht argued that the Settlement Order did not bind her because the USA Today notice did not comport with due process. The district court rejected Hecht's argument and held that the notice satisfied due process because “constructive notice through publication may be sufficient,” and because the amount of money at stake was minuscule since the more-than-two-million class members had only approximately $13,000 to divide among themselves. Hecht v. United Collection Bureau, Inc., No. 10 Civ. 1213, 2011 WL 1134245, at *6 (D.Conn. Mar. 25, 2011). The district court granted the motion to dismiss, dismissing Hecht's supplemental state law claim without prejudice to renewal in state court. Id. at *7. Hecht now appeals.

DISCUSSION

We review de novo a district court's grant of a motion to dismiss. Turkmen v. Ashcroft, 589 F.3d 542, 546 (2d Cir.2009). “The doctrine of res judicata, or claim preclusion, applies in later litigation if an earlier decision was (1) a final judgment on the merits, (2) by a court of competent jurisdiction, (3) in a case involvingthe same parties or their privies, and (4) involving the same cause of action.” In re Adelphia Recovery Trust, 634 F.3d 678, 694 (2d Cir.2011) (internal quotation marks and brackets omitted). Res judicata generally applies to judgments in class actions, but it does not bind class members “where to do so would violate due process.” Stephenson v. Dow Chem. Co., 273 F.3d 249, 260 (2d Cir.2001), aff'd in part by an equally divided court and vacated in part,539 U.S. 111, 123 S.Ct. 2161, 156 L.Ed.2d 106 (2003).

Hecht does not dispute that the Gravina Settlement Order would normally preclude her claim under the res judicata doctrine, but argues under Stephenson that res judicata does not bind her because precluding her action would violate due process. To decide this appeal, we must first determine whether Hecht possessed a due process right to notice and the opportunity to opt out of the Gravina litigation. If we determine that she did, we must then decide whether the Gravina notice satisfied due process.

I.

Absent class members have a due process right to notice and an opportunity to opt out of class litigation when the action is “predominantly” for money damages. Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 811–12 & n. 3, 105 S.Ct. 2965, 86 L.Ed.2d 628 (1985); see Wal–Mart Stores, Inc. v. Dukes, 564 U.S. ––––, 131 S.Ct. 2541, 2558–59, 180 L.Ed.2d 374 (2011). Rule 23 protects that right by providing a parallel statutory requirement of notice and the opportunity to opt out for classes certified under subdivision (b)(3), seeFed.R.Civ.P. Rule 23(c)(2), and the Advisory Committee notes provide that (b)(2) “does not extend to cases in which the appropriate final relief relates exclusively or predominantly to money damages.” Fed.R.Civ.P. Rule 23, Notes of Advisory Committee on Rules, 1966 Amend. After the Supreme Court's decision in Dukes, the right to notice and an opportunity to opt out under Rule 23 now applies not only when a class action is predominantly for money damages, but also when a claim for money damages is more than “incidental.” Dukes, 131 S.Ct. at 2557. The Dukes Court, however, avoided deciding the corresponding constitutional question—whether the due process right articulated in Shutts now extends to actions where money damages do not predominate. See id. at 2559 (“While we have never held that [absence of notice and opt-out violates due process] where the monetary claims do not predominate, the serious possibility that it may be so provides an additional reason” to interpret Rule 23 as requiring notice and opt-out when monetary claims are more than incidental.). This Court has stated in dicta that “notice is required as a matter of due process in all representative actions,”...