Koby v. ARS National Services, Inc., 846 F.3d 1071

Background

Named plaintiffs sued ARS under the FDCPA alleging non‑disclosure in voicemail messages; class ~4 million nationwide (voicemails from Apr 2008–Aug 2011).
ARS voluntarily adopted compliant voicemail language in Aug 2011; later settlement negotiations followed before a magistrate judge.
Parties (named plaintiffs and ARS) consented to final judgment by the magistrate judge; district court designated the magistrate under 28 U.S.C. § 636(c).
Settlement sought certification under Rule 23(b)(2), provided no individual notice or opt‑outs, paid $1,000 to each named plaintiff, $67,500 to class counsel, and $35,000 cy pres to a San Diego charity; absent class members received only a two‑year injunction requiring continued use of the adopted voicemail message and waived the right to pursue class damages claims.
Objector Helmuth (plaintiff in a separate Florida FDCPA class action) argued the settlement was unfair because absent class members got no material benefit yet surrendered class damages rights; magistrate approved settlement and entered judgment; appeal followed.

Issues

Issue	Plaintiff's Argument (Helmuth)	Defendant's Argument (ARS / Named Plaintiffs)	Held
Whether magistrate judge could enter final judgment without consent of absent class members	Consent of named parties alone insufficient if absent class members are "parties" under §636(c)	§636(c) requires only named parties' consent; practical impossibility of notifying millions supports this reading	§636(c) requires only consent of named parties; magistrate had authority to enter judgment
Whether §636(c) violates Article III when applied to class actions	Allowing non‑Article III adjudicators to bind absent class members raises Article III concerns	Named plaintiffs can waive Article III rights for the class; alignment of interests and Rule 23 protections address concerns	No categorical Article III bar; waiver by class representatives not per se unconstitutional; due process limits remain
Whether the settlement was fair, reasonable, and adequate under Rule 23(e)(2)	Settlement is unfair: absent class members get worthless injunctive relief and give up valuable class damages rights; improper 23(b)(2) certification	Class receives injunctive relief and cy pres; statutory damages cap limits class damages so monetary benefit would be negligible	Settlement approval was an abuse of discretion: injunctive relief was ill‑tailored and likely worthless, cy pres untethered, and class damages waiver was material; reversal and remand
Whether the cy pres and injunction provided sufficient benefit to justify the waiver of class damages	Cy pres and short injunction provided no meaningful benefit to four million absent members	Valued relief, plaintiffs argued low net worth and statutory cap made class damages trivial	Court found cy pres untethered and injunction redundant/illusory; benefits insufficient to justify waiver

Key Cases Cited

Devlin v. Scardelletti, 536 U.S. 1 (2002) (absent class members may be treated as parties for some purposes)
Day v. Persels & Associates, LLC, 729 F.3d 1309 (11th Cir. 2013) (consent of named parties sufficient for magistrate jurisdiction)
Dewey v. Volkswagen Aktiengesellschaft, 681 F.3d 170 (3d Cir. 2012) (same)
Williams v. Gen. Elec. Capital Auto Lease, Inc., 159 F.3d 266 (7th Cir. 1998) (same)
Roell v. Withrow, 538 U.S. 580 (2003) (consent can waive right to Article III adjudicator)
In re Bluetooth Headset Prods. Liab. Litig., 654 F.3d 935 (9th Cir. 2011) (heightened scrutiny for pre‑certification settlements; conflict/collusion concerns)
In re Dry Max Pampers Litig., 724 F.3d 713 (6th Cir. 2013) (proponent bears burden to show prospective injunctive relief benefits class)
Nachshin v. AOL, LLC, 663 F.3d 1034 (9th Cir. 2011) (cy pres must be tied to objectives of the underlying statute and class interests)
Hecht v. United Collection Bureau, Inc., 691 F.3d 218 (2d Cir. 2012) (notice defects affect preclusive reach of class judgments)
Crawford v. Honig, 37 F.3d 485 (9th Cir. 1994) (inadequate representation and due process limits on binding absent class members)
In re Cement Antitrust Litig., 688 F.2d 1297 (9th Cir. 1982) (contexts in which absent class members may be treated as parties vary)
Snyder v. Harris, 394 U.S. 332 (1969) (statutory interpretation where absent class members are not parties for certain purposes)
Taylor v. Sturgell, 553 U.S. 880 (2008) (limits on preclusion and due process in class contexts)
Hansberry v. Lee, 311 U.S. 32 (1940) (due process protections for absent class members)
Phillips Petroleum Co. v. Shutts, 472 U.S. 797 (1985) (due process requires notice and opt‑out in some class actions)
Commodity Futures Trading Commission v. Schor, 478 U.S. 833 (1986) (Article III rights and adjudicatory authority)
Pacemaker Diagnostic Clinic of Am., Inc. v. Instromedix, Inc., 725 F.2d 537 (9th Cir. 1984) (Article III adjudicator requirement discussion)