Court: District Court, E.D. New York; January 27, 2013; Federal District Court
John T. Corpac, on behalf of himself and a potential class, alleges that Rubin, Rothman, LLC sent misleading collection communications, falsely implying meaningful attorney review, violating the Fair Debt Collection Practices Act (FDCPA). The lawsuit began on September 8, 2010, and the parties reached a settlement on March 3, 2011. A motion to certify the class and approve the settlement was filed on January 16, 2012, leading to a fairness hearing on June 25, 2012. Objections were raised by Patrick Sejour regarding potential conflicts of interest between the plaintiffs' counsel, William F. Horn, and the defendant's counsel, Robert L. Arleo. Sejour also criticized the vagueness and fairness of settlement terms, including class size, the defendant’s net worth, and a $75,000 attorney fee for class counsel, which he deemed excessive. The court permitted further submissions addressing the alleged conflict of interest and reviewed claims of attorney misconduct. The proposed settlement totals $87,900, with allocations including $3,500 to Corpac, $9,400 to charity, and $75,000 in attorney fees. The FDCPA outlines civil liabilities for debt collectors, allowing for various damages, including actual damages, additional damages up to $1,000 for individuals, or amounts for class actions not exceeding $500,000 or 1% of the debt collector's net worth.
A court may award attorney’s fees and costs to a defendant if it finds that a plaintiff has brought an action in bad faith or for harassment. Plaintiffs can receive statutory damages of $1,000, while other class members may claim 1% of the debt collector's net worth or up to $500,000, whichever is lower. The defendant law firm’s net worth is approximately $960,000, with a settlement figure of $9,400 nearing the full statutory amount.
The agreed notice to the class, as outlined in a joint motion submitted on January 16, 2012, involved a one-time publication in the New York Post. An affidavit indicated this notice was published on April 14, 2012. Attorney Brian L. Bromberg criticized this notice as inadequate, arguing it did not meet the requirement for the best practicable notice, particularly as many class members could be identified. He noted that Rubin, Rothman operates statewide, suggesting that publication in the New York Post would not adequately inform members beyond New York City.
A letter from Class Counsel William F. Horn mentioned that the parties are aware of a recent Second Circuit ruling in Hecht v. United Collection Bureau, which raised due process concerns about class notice adequacy. The case highlighted that a single publication notice violated due process requirements and Rule 23(b)(3). The parties intend to discuss potential revisions to the notice process should the court require additional measures following the Hecht decision.
The Court determined that while Hecht was entitled to protections under Shutts, the notice provided by USA Today did not meet due process requirements. Due process necessitates that notice to absent class members must be the best practicable, effectively informing interested parties about the action's pendency and allowing them to present objections. A mere gesture in notification fails to satisfy these requirements. The adequacy of settlement notice in class actions is assessed based on reasonableness, with the Court noting no precedent in its Circuit supporting the adequacy of a single publication notice. Courts have typically approved notices that included multiple publications or individual mailings. Hecht argued that a more extensive notification strategy, incorporating electronic and local media, could have been implemented beyond the single USA Today notice. The Court concurred, emphasizing that accepting the USA Today notice as sufficient would undermine the Supreme Court's standards. Furthermore, the lack of response from class members indicated the inadequacy of the notice, contrasting with other cases where significant responses confirmed due process compliance.
In the Reply Memorandum of Law submitted by attorney Arleo, it is stated that, in light of the Second Circuit's decision in Hecht v. United Collection Bureau, the parties must withdraw their request for final approval of the Class Settlement Agreement (CSA) and will present a revised notice plan to the Court to comply with the Hecht ruling. Consequently, the Court has retracted its prior denial of an objection to the notice sent to potential class members, determining that the single notice published in the New York Post violated due process and was insufficient. The plaintiff's attorney is tasked with submitting a constitutionally valid notice method to the Court by February 8, 2013. Final approval of the settlement is contingent upon this renewed application, resolution of a conflict of interest issue, and the new notice method.
The conflict of interest issue arises from a letter dated June 22, 2012, from attorney Bromberg, who represents objector Patrick Sejour. Bromberg claims that William F. Horn cannot serve as class counsel due to an undisclosed conflict involving his relationship with Robert Arleo, counsel for the defendant. Bromberg cites that Horn and Arleo have co-counseled numerous Fair Debt Collection Practices Act (FDCPA) cases, including at least 25 since 2009, which raises concerns regarding whether the settlement was negotiated impartially, as it allegedly offers no real benefit to class members. In response, Horn disputes the conflict claim, asserting that Arleo was not the attorney for the defendant during the settlement process and had no involvement in the settlement discussions, which were solely managed by attorney Joseph A. Latona.
Arleo joined the case as additional counsel for the defendant on December 21, 2011, at the request of attorney Latona, who sought Arleo's expertise in class action procedural issues. Latona clarified that Arleo did not influence or participate in the settlement negotiations between himself and Horn. Despite a close professional relationship, having worked together in at least 23 other cases, Arleo was not involved in the initial settlement reached by Latona and Horn in March 2011. The settlement is currently invalid, necessitating further legal proceedings. The court must determine whether a conflict of interest exists between Horn and Arleo and, if so, what remedies to apply.
The court’s authority to disqualify attorneys aims to maintain the integrity of legal processes, balancing clients' rights to choose their counsel with the necessity for professional standards. The Eastern District of New York adheres to the New York State Lawyer’s Code of Professional Responsibility, which emphasizes the need for independent professional judgment and the avoidance of the appearance of impropriety. Disqualification motions are at the District Court's discretion and should only be granted when there is a significant risk of trial taint due to violations of professional ethics.
Motions to disqualify opposing counsel are scrutinized due to potential abuse, emphasizing the court's duty to balance a client's right to choose counsel with the need for professional conduct and justice. Courts must act against unethical behavior and determine disqualification based on a careful analysis of facts and precedent rather than strict rules. Disqualification may occur if an attorney can leverage privileged information to their client’s advantage. In the specific case involving Robert Arleo, although his prior business relationship with Horn did not impact the settlement negotiations, the settlement remains unapproved by the Court, and a new notice to class members is required due to the invalidity of the previous notice. This new notice process may attract more class members and objections, posing potential complications for Arleo's future involvement in the case, including participation in notices, hearings, settlements, or trials. The court recognizes a serious future issue if Arleo remains co-counsel, given the implications of confidential information that could affect the case.
Arleo and Horn have a close professional relationship, having co-counseled in at least 23 class actions related to the Fair Debt Collection Practices Act (FDCPA). Arleo is believed to possess confidential information about Horn's strategies and methods, which could be used to benefit his own client and potentially harm the plaintiff class. Given recent changes in the case's dynamics, including the possibility of new class members and a revised settlement or trial, the Court emphasizes its responsibility to protect class members and maintain transparency. Consequently, the Court decides that Arleo should be removed from the case to uphold ethical standards.
The document also references allegations of misconduct involving Bromberg and Schedler, made by Horn and Arleo. During a Fairness Hearing, Arleo accused Bromberg of attempting to disrupt the case for financial gain by creating smaller class actions, thereby increasing attorneys' fees. The Court acknowledged these serious allegations but noted they appeared unrelated to the current case. It requested further submissions from the involved parties regarding the necessity of referring the matter for potential disciplinary action under Local Rule 1.5(f).
The Horn and Arleo Memorandum, dated July 23, 2012, includes a letter from Bromberg to former Magistrate Judge Michael L. Orenstein regarding the Gravina v. National Enterprise Systems case, where Horn and Arleo acted as co-counsel and negotiated a class action settlement. Bromberg planned to file a motion to intervene to object to the settlement, alleging a "payoff" to Richard Gravona and other plaintiffs for their consent to the settlement. Horn and Arleo labeled these allegations as "patently baseless and false," demanding a retraction and noting the court's authority to impose monetary sanctions for such litigation practices.
In his response dated July 27, 2012, Horn detailed his legal background as a sole practitioner specializing in Fair Debt Practice Act claims and expressed concern over an unnamed individual's claim that a non-profit entity exclusively referred cases to Bromberg. Horn's investigation suggested a financial arrangement between Bromberg and these non-profits, leading him to believe this might violate referral fee rules. He apologized if his statements were considered undignified and requested that the court discharge its order to show cause and not refer him for disciplinary action.
Bromberg's declaration on the same date asserts that neither he nor Schedler should face disciplinary proceedings, while suggesting that Horn should be referred for making false allegations of kickbacks related to their financial arrangements. Bromberg categorically denied any existence of kickbacks and requested Horn's removal as class counsel due to a conflict of interest, asserting that Horn's allegations lacked factual basis.
Matthew Schedler's declaration, dated July 27, 2012, supports Bromberg's statements and indicates that neither he nor Bromberg should face disciplinary action, whereas Horn should. The Court was primarily concerned with Horn's allegation of "kickbacks" against Bromberg, which Horn subsequently withdrew, apologizing for any offense caused. The Court accepted this apology and emphasized its policy of caution regarding referrals for disciplinary action, noting a lack of evidence warranting such referrals for any attorneys involved. Although Horn made an unfair comment about Bromberg, he acknowledged his mistake and apologized. Ultimately, the Court decided against imposing sanctions or disciplinary referrals. The Court ordered Robert L. Arleo to withdraw from the case within twenty days and to inform the Court upon completion. Additionally, it denied the request for disciplinary referrals and directed the plaintiff's attorney to update the Court regarding a notice for potential class members by February 8, 2013. Finally, the Court instructed the Clerk to terminate specific docket numbers.
