Sykes v. Mel S. Harris and Associates LLC
1:09-cv-08486
S.D.N.Y.May 24, 2016Background
- Plaintiffs brought a nationwide (New York-focused) class action alleging that debt buyer LR Credit and its collection law firm Mel S. Harris & Associates, with process server Samserv and related entities, obtained default judgments through "sewer service" (fraudulent affidavits of service), producing widespread garnishments, levies, and credit harm.
- The Court certified Rule 23(b)(2) and (b)(3) classes; the Second Circuit affirmed certification. Extensive discovery followed (500,000+ pages from defendants).
- After multi-year, arm’s-length negotiations (including mediations), parties executed two settlement agreements providing monetary and injunctive relief.
- Monetary relief: defendants and insurers funded a Settlement Fund exceeding $60 million (Leucadia ~$46M + collections + Mel Harris/Samserv ~$8.6M); individualized allocation plan gives high-recovery percentages for many claimants.
- Non-monetary relief: suspension of collections, transfer of debt portfolios to nonprofit Rolling Jubilee (which will not collect), and cooperation to vacate default judgments en masse through CPLR 5015(c), extinguishing over $1 billion in face debt and stopping garnishments.
- Class notice and administration (Epiq) reached ~215,000 class members; ~27% submitted claims; objections and opt-outs were negligible. Court found settlement fair, reasonable, and adequate and approved attorneys’ fees, expenses, and service awards.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the proposed settlement is fair, reasonable, and adequate under Rule 23(e) | Settlement provides substantial immediate monetary relief, vacatur of judgments, suspension of collections, and permanent injunctive reforms; counseled by experienced counsel after extensive discovery and mediation | Defendants contested liability and causation in litigation; maintained defenses that could limit recovery and argued other factual/legal questions (e.g., FDCPA scope) | Court approved settlement as fair, reasonable, and adequate (considering Grinnell factors, low objections, discovery, and counsel experience) |
| Class certification for settlement purposes | Class met numerosity, commonality, typicality, and adequate representation; injunctive relief appropriate for (b)(2) class and predominance/superiority satisfied for (b)(3) class | Defendants previously sought interlocutory review but lost on appeal; they argued individualized issues could exist | Court reaffirmed certification for settlement purposes (b)(2) and (b)(3) classes; classes remain certified for settlement only |
| Adequacy of the allocation plan (distribution formula) | Allocation maximizes recovery for those who suffered economic loss (tiers tied to timeliness of claims); plan vetted by independent evaluator and counsel | Potential individual complaints that some payouts are small compared to alleged payments | Court approved Allocation Plan as reasonable and rational for settlement distribution |
| Reasonableness of attorneys’ fees, expenses, and service awards | Counsel sought $14.4M (24% of cash fund; lower percent when non-monetary value included), lodestar cross-check supports multiplier; work and risk justify fees; service awards for lead plaintiffs reasonable | Objector argued fee amount excessive and raised tax concerns | Court approved fees ($14.4M), expenses (~$192k), and $30,000 service awards each, finding Goldberger factors satisfied and lodestar cross-check acceptable |
Key Cases Cited
- Phillips Petroleum Co. v. Shutts, 472 U.S. 797 (1985) (class member due‑process and personal jurisdiction principles)
- Amchem Prods. v. Windsor, 521 U.S. 591 (1997) (standards for class notice and settlement approval)
- Wal‑Mart Stores, Inc. v. Visa U.S.A., Inc., 396 F.3d 96 (2d Cir. 2005) (reasonableness standard for class notice)
- City of Detroit v. Grinnell Corp., 495 F.2d 448 (2d Cir. 1974) (factors for evaluating settlement fairness)
- Goldberger v. Integrated Res., Inc., 209 F.3d 43 (2d Cir. 2000) (standards for awarding attorneys’ fees in common-fund cases)
- Boeing Co. v. Van Gemert, 444 U.S. 472 (1980) (common‑fund doctrine for awarding counsel fees)
- Wal‑Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011) (discussion of Rule 23(b)(2) and classwide injunctive relief)
- Sykes v. Mel S. Harris & Assocs., 780 F.3d 70 (2d Cir. 2015) (Second Circuit decision affirming class certification in this litigation)