United States: Magistrate Judge Had Authority To Enter Final Judgment Without Consent Of Absent Class Members But Abused Discretion In Approving Settlement

Last Updated: February 20 2017
Article by Gary M. Pappas

The Ninth Circuit held that a magistrate judge was not required to obtain the consent of absent class members to approve a settlement in a Fair Debt Collection Practices Act (FDCPA) case and to enter a final judgment after certifying a nationwide injunction class. In so ruling, the court joined the Third, Seventh and Eleventh Circuits. The court also held, however, that the magistrate judge abused her discretion in approving the settlement because the injunction was worthless and the absent members lost their right to a damages remedy in any other class action. Furthermore, no evidence existed that the absent members would derive any benefit from the settlement's cy pres award.

Three plaintiffs sued a debt collection agency for leaving voice mail messages dating back to 2008 that violated the FDCPA. During the pendency of the litigation in 2011, the agency adopted a new standardized message that complied with the Act. The parties then consented to conduct all further proceedings before a magistrate judge pursuant to 28 U.S.C §636(c), and the district court entered an order designating the magistrate to exercise jurisdiction over the entire case.

In 2013, the parties reached an agreement to seek certification of a nationwide, settlement-only class under Rule 23(b)(2). The proposed settlement class consisted of everyone in the United States who had received the agency's non-compliant voicemail from 2008 to 2011 — a total of four million people nationwide. The injunction required the agency to continue using the compliant voicemail it voluntarily adopted in 2011 for two more years. The agency agreed to pay each of the named plaintiffs $1,000, the maximum they could recover under FDCPA because none had suffered actual damages.

Under the FDCPA, the absent class members' collective damages were capped at $35,000 — 1% of the agency's claimed $3.5 million net worth. Given the impossibility of distributing less than a penny to four million people, the agency agreed to make a $35,000 cy pres payment to a San Diego veterans charity. The parties' proposed settlement required the absent members to forfeit their right to pursue damages against the agency in any other class action under federal or state law. However, under Rule 23(b)(2), the absent members would not receive notice of the settlement and would not be able to opt out.

One absent class member objected to the parties' proposed settlement at the fairness hearing. She became aware of the settlement when the parties moved to stay her own class action against the agency pending in the Southern District of Florida. The objector's complaint alleged the identical FDCPA violations against the agency but for a much smaller class consisting of only a few hundred Florida residents who owed money to a particular creditor on whose behalf the agency was trying to collect. The objector claimed that the parties' proposed settlement was unfair because it would require each of her absent class members to give up a damages claim worth about $100 in her case under the FDCPA damages cap. The magistrate judge approved the nationwide settlement nevertheless, and the objector appealed.

Before reaching the merits of the settlement, Ninth Circuit addressed its own appellate jurisdiction, which was dependent on the magistrate's authority to enter the final judgment. Under 28 U.S.C §636(c)(1), the magistrate's authority required "the consent of the parties", but the four million absent class members did not give theirs. The court observed that the phrase "the parties" does not have a fixed meaning in federal jurisprudence and that in some contexts had been interpreted to include absent class members. The court reviewed the provisions of §636(c)(2), which specifies the procedures for obtaining party consent under (c)(1), and concluded that Congress did not intend for "the parties" to include absent class members in this context.

For example, the court observed that (c)(2) requires the clerk to notify the parties of the availability of a magistrate judge, and it would be impossible for the clerk to undertake such notice at the time the action is filed and cost prohibitive at such time as the absent members could be identified through discovery. The court reasoned that this interpretation of the statute was also consistent with the general rule that named plaintiffs in class actions are charged with conducting the litigation on behalf of the absent members they represent, including matters of litigation strategy such as the claims to pursue or to drop, discovery to take and motions to file. According to the court, deciding whether to consent to a magistrate judge was litigation strategy of the same order — if not less consequential — than other strategy decisions and is binding on the absent class members even if made by the plaintiffs before the class is even certified.

The court also held that the Constitution does not impose a categorical prohibition on named plaintiffs waiving the right to proceed before an Article III judge on behalf of absent class members. The court reasoned that to serve as class representatives, the named plaintiffs must have claims typical of the class and must fairly and adequately represent the interests of the class. Therefore, the named plaintiffs and absent members' interests should be aligned in the decision whether to waive the right to have an Article III judge hear the case and proceed before a magistrate judge instead. The Due Process Clause, as enforced through Rule 23, ensures that the named plaintiffs interests are, in fact, aligned with those of the entire class and that they fairly and adequately represent the absent members' interests. These due process limits affect the enforcement of class judgments but not the magistrate judges' authority under §636(c) to enter the judgment in the first place.

Turning to whether the settlement terms were fair, reasonable and adequate under Rule 23(e)(2), the court first observed that a class settlement such as this one, which is entered before formal certification, requires heightened scrutiny because of the increased risk that named plaintiffs and their counsel will breach fiduciary obligations owed to absent class members. The court then had little trouble finding that the magistrate abused her discretion in approving this settlement.

According to the court, "the named plaintiffs and class counsel got what they wanted but the remaining four million class members got worthless injunctive relief." The court observed that the injunction merely preserved the status quo for two years because the agency had already adopted a FDCPA-compliant voicemail message. Moreover, the class was not defined to include those who were likely to be contacted by the agency in the future but only those who had suffered a past wrong at the agency's hands by receiving the non-compliant voicemail two to five years earlier. The parties made no showing, as was their burden at the fairness hearing, that the class members were likely to contacted by the agency after approval of the settlement such that they would benefit from the injunction.

The court found, similarly, that counsel presented no evidence the class would derive any benefit from the cy pres award. The court noted that longstanding precedent required the award to "be tethered to the objectives of the underlying statutes or the interests of the class members." Here, the award was a $35,000 donation to a San Diego veterans' organization, yet no evidence existed that it performed any work protecting consumers from unfair debt collection practices as proscribed by the FDCPA. Likewise, no evidence existed that the four million class members – who were scattered throughout the United States not concentrated in southern California — were disproportionately composed of veterans.

Finally, the Court blasted the settlement for its requirement that the absent class member forfeit their right to damages in any class action against the agency. "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." And while the parties disputed whether such rights had any real value under the damages caps of the FDCPA, the objector proved that the damages claims of her class members clearly had some value. Furthermore, the court observed that the class members were also giving up rights under state law claims that may not have the same damages caps as the FDCPA.

Koby v. Helmuth  No. 13-56964 (9th Cir. Jan. 25, 2017)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.