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Decided: December 4, 2015  

The Fourth Circuit affirmed the district court’s decision finding no error in the release of the statutory damages claims as part of a Rule 23(b)(2) settlement, and no abuse of discretion in the approval of the settlement agreement.

This dispute involved Lexis’s sale of personal data reports to debt collectors. According to the class action plaintiffs, Lexis failed to provide the protections of the Fair Credit Reporting Act (FCRA) in connection with these identity reports (Accurint for Collections). However, according to Lexis, its data reports do not qualify as “consumer reports” within the meaning of the FCRA; therefore, it is not required to comply with the FCRA. After a large amount of time and expenses, a deal was agreed upon. Lexis would make changes to its product offerings in order to secure consumer information, and in exchange, the members of the class action would release any statutory damages claims under the Act. The district court certified a settlement class under Federal Rules of Civil Procedure Rule 23(b)(2) and approved the class action settlement. Here, a group of class members are seeking to undo that settlement agreement wanting to pursue statutory damages individually. In order for these members to receive statutory damages, they must prove not only that Lexis violated the FCRA, but also that it did so willfully. Unless Lexis was “objectively reasonable” in concluding its Accurint reports were not “consumer reports” subject to the FCRA, then there would be no liability for statutory damages.

First, the objectors challenged the district court’s certification of the (b)(2) class for settlement purposes. The decision to certify a class is reviewed for “clear abuse of discretion.” Substantial deference is given to the district court in making this decision. Under the Federal Rules of Civil Procedure, Rule 23(a), a party seeking class certification must first demonstrate “(1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class.” Next, if these requirements are met, then the proposed class must fit within one of the three types of classes listed in Rule 23(b). Here, objectors take issue with Rule 23(b)(2), which allows certification where “the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole.” Rule 23(b)(2) classes are to be a homogenous group with little conflicting views because “opt-out rights” for class members are not provided.

Rule 23(b)(2) classes can occasionally, but not often, be certified even when monetary relief is at issue; however, monetary relief must be incidental to injunctive or declaratory relief. However, the Fourth Circuit agreed with the district court in that the “meaningful, valuable injunctive relief” awarded by the Agreement is indivisible and benefits all members of the class at once. There are surely individualized monetary claims at issue; however, those are claims for actual damages and are retained by the (b)(2) class members. Additionally, the objectors argue that due process precludes the certification of a class without opt-out rights; however, the Fourth Circuit declined to go where the Supreme Court has not and followed the precedence of not recognizing the rigid opt-out rule proposed by the objectors. Further, the Fourth Circuit deferred to the judgment of the district court in approving the Class Representatives’ fee award because there was no conflict of interest between the Class Representatives and the rest of the class.

Next, the objectors challenge the approval of the district court regarding the (b)(2) class settlement, arguing that it was unfair and inadequate because it releases the statutory damages claims of the class members without providing any monetary relief in exchange. The Fourth Circuit concluded that the district court correctly considered the identified factors bearing on this issue: “(1) the posture of the case at the time the settlement was proposed, (2) the extent of discovery that had been conducted, (3) the circumstances surrounding the negotiations, and (4) the experience of counsel in the area of [FCRA] class action litigation.” In order to recover statutory damages under the FCRA, the plaintiffs would have to show a “willful” violation by Lexis, which in turn would require that Lexis adopted an “objectively unreasonable” reading of the FCRA when it concluded that its reports were not covered as “consumer reports.” Lexis had agency guidance from the Federal Trade Commission expressly stating that these reports are not subject to the FCRA. Therefore, the Fourth Circuit determined that Lexis did not act unreasonable by adopting that reading, and ultimately, the district court was appropriate to approve the settlement as fair, reasonable, and adequate under Rule 23(e).

Finally, a single objector challenged the district court’s approval of class counsel’s approximate $5.3 million dollar attorneys’ fee. The award of attorneys’ fees must be reasonable and will only be overturned if it is clearly wrong. The Fourth Circuit determined the district court’s approval of the fee award was appropriate because class counsel “expended large amounts of time and labor, and achieved an excellent result in this large and complex action.”

Full Opinion

Austin T. Reed