United States District Court, District of Maryland
ASHLEY McDANIELS, on her own behalf and on behalf of all others similarly situated, Plaintiff,
WESTLAKE SERVICES, LLC, d/b/a Westlake Financial Services, et. al., Defendants.
Ellen L. Hollander United States District Judge
The Court held a class action fairness hearing on February 7, 2014, to consider final approval of a settlement in regard to a suit initiated by plaintiff Ashley McDaniels (“Named Plaintiff”) against defendant Westlake Services, LLC, d/b/a Westlake Financial Services (“Westlake”). At the hearing, the Court heard comments from counsel for the parties.
Now pending are several motions filed by Class Counsel, including a “Motion to Grant Final Approval of Settlement” (ECF 67); a “Second Motion to Approve Cy Pres Award” (ECF 64); a “Second Petition for Incentive Award to the Named Class Representative” (ECF 65); and an “Application for an Award of Attorney’s Fees and Expenses” (ECF 66). Prior to the hearing, the parties submitted a “[Proposed Joint] Final Order and Judgment Approving Settlement and Certifying Settlement Classes” (ECF 73; modification in original). After the hearing, minor revisions were made to the proposed final order. See ECF 76 (“Final Order and Judgment Approving Settlement and Certifying Settlement Classes”). None of the motions are contested.
In July 2011, McDaniels filed a class action suit against Westlake Services. Westlake was plaintiff’s creditor with respect to a Retail Installment Sale Contract (“RISC”) that Ms. McDaniels executed in 2009 to finance the purchase of a motor vehicle from a used car dealership in Baltimore, Maryland. Complaint ¶¶ 30-32. The motor vehicle was collateral for the loan. The RISC was assigned to Westlake. Ms. McDaniels contended that Westlake unlawfully charged her convenience fees and interest at a rate of 25%, in excess of the maximum rate of 24% permitted by Maryland law. She also claimed that, after she fell behind in her loan payments, the vehicle was unlawfully repossessed in 2010, in violation of The Credit Grantor Closed End Credit Provisions (“CLEC”) of the Maryland Credit Deregulation Act of 1983, codified, as amended, at Md. Code (2005 Repl. Vol., 2012 Supp.), §§ 12-1001 et seq. of the Commercial Law Article (“C.L.”). Westlake sent Ms. McDaniels a pre-sale notice informing her that the motor vehicle would be sold unless she redeemed it by paying the amounts past due on her loan. Complaint ¶ 43. However, plaintiff alleged that the pre-sale notice did not state the location, date, or time at which the vehicle would be sold. Id. ¶¶ 44-46. After Westlake sold Ms. McDaniels’ motor vehicle, it sought unsuccessfully to collect a claimed deficiency balance from Ms. McDaniels. Id. ¶¶ 47-50. McDaniels alleged that Westlake also failed to provide statutorily compliant post-sale notices of claimed deficiency.
The Complaint (ECF 1) contained five counts directed against Westlake: violation of CLEC (Count I); breach of contract (Count II); violation of the Maryland Consumer Protection Act (“CPA”) (Count III); restitution and unjust enrichment (Count IV); and violation of the Maryland Consumer Debt Collection Act (“MCDCA”), C.L. §§ 14-201 (Count V).
By way of background, CLEC is one of several statutory schemes in Maryland that govern the extension of credit. Among other things, CLEC limits the rate of interest that can be charged on a covered loan to an “effective rate of simple interest [that] is not in excess of 24 percent per year, ” C.L. § 12-1003(a); it limits the types and amount of fees that can be charged to a borrower, see C.L. § 12-1005; and it establishes notice and other detailed procedural requirements for the repossession and sale of collateral. See C.L. § 12-1021.
In addition, CLEC imposes a stringent penalty for violation of the statutory scheme: “Except for a bona fide error of computation, if a credit grantor violates any provision of [CLEC] the credit grantor may collect only the principal amount of the loan and may not collect any interest, costs, fees, or other charges with respect to the loan.” C.L. § 12-1018(a)(2). Moreover, if a credit grantor “knowingly” violates CLEC, the credit grantor is liable for treble damages. C.L. § 12-1018(b).
However, CLEC establishes a safe harbor for a credit grantor who promptly cures certain kinds of violations after receiving notice of the violations, including violations of the maximum interest rate provisions and fee provisions (although not the repossession provisions). See C.L. § 12-1018(a)(3)(i) (enumerating CLEC provisions subject to safe harbor). In the case of a failure to comply with the applicable provisions that is “[u]nintentional[ ] and in good faith, ” the penalty of forfeiture of all amounts other than principal does not apply, so long as the credit grantor “[c]orrects the error or violation and makes the borrower whole for all losses, including reasonable attorney’s fees and interest, where appropriate, within 10 days after the credit grantor receives notice of the error or violation.” C.L. § 12-1018(a)(3).
Plaintiff proposed to conduct the case as a class action on behalf of two defined classes: a “Repossession Class, ” consisting of all persons whose consumer goods were repossessed by Westlake in connection with a credit contract governed by CLEC; and an “Interest Rate/Fee Class, ” consisting of all persons who entered into a credit contract with Westlake that was governed by CLEC and who were charged (1) interest at a rate exceeding 24% and/or (2) a convenience fee. The FDCPA and MCDCA claims were brought only by Ms. McDaniels individually, and not on behalf of either proposed class.
Soon after the complaint was filed, the parties jointly requested an expedited settlement conference and a stay of further proceedings pending a settlement conference. See ECF 8. The Court granted the request, see ECF 9, and a settlement conference was conducted by Magistrate Judge Beth Gesner on October 5 and 6, 2011. With her able assistance, settlement negotiations were initially fruitful and, on January 31, 2012, plaintiff filed a motion for preliminary approval of a class-wide settlement (ECF 14), memorialized in a Settlement Agreement dated January 19, 2012 (ECF 14-2).
Pursuant to the Preliminary Approval Order issued by the Court on February 6, 2012, and the terms of the Settlement Agreement, the Settlement Administrator provided notice by mail to the potential class members. The potential class members had until May 6, 2012, to object to or opt out of the Settlement Agreement. Of the 3, 057 potential class member accounts (involving 3, 565 individuals), 2, 993 received notice. See ECF 21 at 2. In an affidavit submitted soon thereafter (ECF 21), an employee of the Settlement Administrator averred that, by the deadline, the Settlement Administrator had received one opt-out and no objections.
On February 6, 2012, Judge Benson E. Legg, to whom the case was then assigned, issued an “Order Preliminarily Approving Settlement, Certifying Classes for Settlement Purposes, Appointing Class Counsel and Settlement Administrator, and Setting Schedule with Respect to Notice, Settlement Hearing and Administration” (“Preliminary Approval Order”) (ECF 15). Among other things, the Preliminary Approval Order preliminarily approved the parties’ settlement agreement as “fair, reasonable and adequate, subject to further consideration thereof at [a] Fairness Hearing” to be held on June 14, 2012; it preliminarily certified for settlement purposes both the Repossession Class and the Interest Rate/Fee Class, pursuant to Fed.R.Civ.P. 23(b)(3); and it made provisions for notice to class members and an opportunity to opt out of the class and proposed settlement. Preliminary Approval Order at 1-2, 4-5, 6.
One month before the fairness hearing was to occur, plaintiff filed a Motion to Vacate the Preliminary Approval Order (“Motion to Vacate”) (ECF 20), on the ground that new information, which had come to light in the course of “confirmatory discovery” provided by Westlake, undermined the basis for the settlement agreement. Shortly thereafter, and on the same basis, plaintiff filed a Motion in Opposition to Final Settlement Approval (“Motion Against Final Approval”) (ECF 22). Westlake opposed the Motion to Vacate, see ECF 25 & 30, and the Motion Against Final Approval, see ECF 27, and filed a Motion for Final Approval of Class-Action Settlement (“Motion for Final Approval”) (ECF 26). The fairness hearing was postponed, see ECF 33, and the motions were briefed. The case was reassigned to me on October 24, 2012, due to Judge Legg’s then-impending retirement.
Thereafter, in a Memorandum Opinion (ECF 49) and Order (ECF 50) filed June 7, 2013, I denied what were the then-pending motions.
II. The Settlement Agreement
The Settlement Agreement of January 19, 2012, proposed to resolve the claims of plaintiff as well as a total of 3, 056 class members who “arguably fall within one or both of the Classes.” Settlement Agreement ¶ 11.A, at 3. Of the total 3, 056 class members, 219 accounts came within the Repossession Class, and 3, 050 accounts came within the Interest Rate/Fee Class, having been charged either a convenience fee or interest in excess of 24%. See Id . ¶ 11.B-C, at 3. Of the 3, 050 accounts in the Interest Rate/Fee Class, 2, 837 accounts had not undergone repossession, and thus were not members of the Repossession Class; the parties referred to these 2, 837 accounts as the “Non-Repossession Accounts.” Id. ¶ 11.D, at 3. Of the Non-Repossession Accounts, 147 accounts had been “charged off” by Westlake on or before July 22, 2011, and were referred to as the “Charged-Off Accounts.” Id. ¶ 11.E, at 3. Westlake also asserted that the “obligors on at least 1, 023 of the credit accounts identified as potentially within one or both Classes . . . could arguably have been excluded from the Classes due to legal defenses regarding arbitration clauses and statute of limitations.” Id. ¶ 11.F, at 3-4.
The Settlement Agreement recounted that Westlake had taken several steps during the Cure Period to attempt to cure the alleged CLEC violations and thereby bring itself within CLEC’s safe harbor. The Settlement Agreement stated, id. ¶ 11.G at 2, 4-6:
Westlake has represented, and [Ms. McDaniels] relies upon such representation, that:
Within ten (10) days of receiving service of process in the Action, Westlake, on its own accord and in an attempt to cure any alleged violations of the CLEC asserted in the Complaint, took the following actions on or before July 22, 2011:
1. Westlake ceased using the allegedly defective pre-sale notice and post-sale accounting to cure the defects alleged in this Action.
2. Westlake ceased charging convenience fees to Maryland consumers that entered into a credit contract governed by CLEC.
3. Westlake ceased charging interest at a rate greater than twenty-four percent (24%) to Maryland consumers that entered into a credit contract governed by CLEC.
4. Westlake waived all interest on Repossession Class credit accounts and credited all interest payments made, including the proceeds of the sale of collateral, to principal. The total of such interest payments re-classified to principal and waivers of unpaid interest was approximately $416, 415.
5. Westlake also credited each Repossession Class credit account with six percent (6%) interest from the date of each interest payment that was reclassified as principal. The total of the six-percent interest credited to Repossession Class credit accounts was approximately $197, 835.
6. Westlake waived all convenience fees charged to Repossession Class credit accounts, totaling $5, 067, and reallocated those convenience fee payments toward principal. Westlake also credited Repossession Class credit accounts with six percent (6%) interest from the date of each convenience fee payment that was reallocated, resulting in additional credits of $671.
7. In addition to the credits described in the preceding Sections . . . Westlake waived all outstanding balances and/or deficiencies that were owed in connection with the Repossession Class credit accounts. The total of the outstanding balances waived was approximately $453, 304.
8. Westlake dismissed, with prejudice, any pending collection lawsuits against the Repossession Class obligors grounded upon an alleged deficiency or balance due with respect to any of those contracts.
9. Westlake also filed a request to vacate judgment in any case in which a judgment had been entered against any Repossession Class obligor.
10. Westlake mailed checks totaling $97, 996.87 to Repossession Class obligors for overpayments by such obligors resulting from the above-described credits, reclassifications and waivers.
11. Westlake recalculated all of the Non-Repossession Accounts that exceeded twenty-four percent (24%) interest as if they were issued at 24%, which resulted in the reallocation of interest payments toward principal totaling approximately $377, 280. This recalculation of the interest rate is also estimated to save Non-Repossession Account obligors an ...