DECISION AND ORDER
Thе above-referenced case was referred to Magistrate Judge Jeremiah J. McCarthy, pursuant to 28 U.S.C. § 636(b)(1)(B). On October 20, 2015, Magistrate Judge McCarthy filed a Report and Recommendation (Dkt. No. 94), recommending that plaintiffs uncontested Motion for Settlement (Dkt. No. 92) be denied. Per the Court’s November 5, 2015 text order, the parties had until December 10, 2015 to file objections, if any, to Magistrate Judge McCarthy’s report and recommendation. As of today’s date, neither party has filed objections or requested additional time to do so.
The Court has carefully reviewed the Report and Recommendation, the record in this case, and the pleadings and materials submitted by the parties, and no objections having been timely filed, it is hereby
ORDERED, that pursuant to 28 U.S.C. § 636(b)(1), Judge McCarthy’s Report and Reсommendation is adopted in its entirety, and plaintiffs Motion for Settlement is denied.
The case is referred back to Magistrate Judge McCarthy for further proceedings.
IT IS SO ORDERED.
REPORT AND RECOMMENDATION
Before me is plaintiffs uncontested motion seeking conditional certification of a
BACKGROUND
Procedural History
Plaintiff Jeffrey Zink commenced this action on July 19, 2013, seeking to recover class penalties from First Niagara pursuant to New York’s Real Property Law (“RPL”) § 275(1) and Real Property Actions and Proceedings Law (“RPAPL”) § 1921(1), for its allegedly “systematic failure to timely present to the county clerks of New York State proof that mortgages have been satisfied”. Complaint [1], ¶ 1; Amended Complaint [21], ¶ 1.
Both statutes contain the following provision: “Failure by a mortgagee to present a certificate of discharge for recording shall result in the mortgagee being liable to the mortgagor in the amount of five hundred dollars if he or she fails to present such certificate within thirty days [after payment] ... in the amount of one thousand dollars if he or she fails to present a certificate of discharge for recording within sixty days and ... in the amount of one thousand five hundred dollars if he or she fails to present a certificate of discharge for recording within ninety days.”
The proposed class was defined as: “All persons who were the mortgagor party to a mortgage held by First Niagara, N.A. secured by real property located in New York State for which the principle, interest and all other amounts due or otherwise owed was completely paid after July 19, 2007 but Defendant failed to present a certificate of discharge or satisfaction of mortgage within 30 days to the recording officer of the county where the mortgage was recorded.” Complaint ¶ 16; Amended Complaint [21], ¶ 20.
First Niagara moved to dismiss the Amended Complaint pursuant to Rule 12(b)(6) [37], arguing that Zink’s statutory claims are preempted by the National Banking Act (“NBA”), 12 U.S.C. § 1, et seq., and a regulation promulgated thereunder by the Office of the Controller of the Currency (“OCC”), 12 C.F.R. § 34.4(a)(10) (First Niagara’s Memorandum of Law [37-1], Point I); that Zink lacked standing to pursue his claims because his satisfaction of mortgage had already been recorded (id., Point II); and finally, that Zink failed to properly allege that First Niagara violated RPL § 275 or RPAPL § 1921 (id., Point III).
Before addressing the merits of that motion, I raised sua sponte the issue of whether diversity jurisdiction exists: “Although First Niagara’s motion does not raise this issue, I have an independent obligation to determine whether this court has jurisdiction to proceed. See Henderson ex rel. Henderson v. Shinseki,
I noted that “Zink alleges that ‘[j]uris-diction in this civil action is authorized pursuant to 28 U.S.C. § 1332(d)(2)(A), as minimal diversity exists, there are more than 100 Class members, some of whom are not citizens of New York State, and the amount in controversy is in excess of $5 million’. Amended Complaint [12], ¶ 5. Although no class has yet been certified, 28 U.S.C. § 1332(d)(8) provides that ‘[t]his subsection shall apply to any class action before or after the entry of a class certification order’. Therefore; resolution of the issue of diversity jurisdiction must await the determination of whether any members of the proposed class are citizens of states other than New York, whether there are at least 100 members in the class, and whether the amount in controversy exceeds $5 million. Since those determinations have not yet been made, I may not dismiss the action at this time for lack of diversity jurisdiction, for ‘where the issue of subject matter jurisdiction is so intertwined with the merits that its resolution depends on the resolution of the merits, the court should ... dismiss for lack of jurisdiction only where no triable issues of fact exist’. Hamm v. United States,
After analyzing the arguments raised by First Niagara, I recommended that its motion to dismiss be denied. Id., p. 17. That recommendation was adopted by Judge Arcara [59] (reported at
Thereafter, the parties engaged in “extensive and hard-fought litigation, which included motion practice and substantial discovery, and after extended settlement negotiations that commenced with a mediation before mediator David Geronemus, Esq. of JAMS and that continued for two additional months, [the parties] have agreed to settle this action”. Plaintiffs Memorandum of Law [92-1], p. I.
Terms of the Proposed Settlement
The proposed Settlement Class is defined as: “All persons who were the mortgagor party to a mortgage held by First Niagara, N.A. secured by real property located in New York State for which the principle, interest and all other amounts due or otherwise owed was completely paid after July 19, 2007 but Defendant failed to present a certificate of discharge or satisfaction of mortgage within 30 days to the recording officer of the county where the mortgage was recorded.” Plaintiffs Memorandum of Law [92-1], p. 6. While the “class period” runs from July 19, 2010 to November 14, 2014 (Settlement Agreement and Release [92-3], § 2.06), the Uncontested Motion does not explain
“[T]here are 5010 members of the Settlement Class, 2792 for whom certificates of discharge were presented more than thirty but less than sixty-one days late, 1137 for whom certificates of discharge were presented more than sixty but less than ninety-one days late, and 1081 for whom certificates of discharge were presented more than ninety days late.” Plaintiffs Memorandum of Law [92-1], p. 5. “First Niagara has agreed to pay up to $2.2 million dollars to pay claims made by class members, the costs of administering the proposed settlement, and Plaintiffs counsel’s costs and fees. Class members who make claims will receive substantial cash payments: up to $250 for mortgagors whose certificates were presented more than 30 days after satisfaction; up to $500 for mortgagors whose certificates were presented more than 60 days after satisfaction; and up tо $750 for mortgagors whose [certificates were] presented more than 90 days after satisfaction.” Id., p. 1. “Claimants will receive these amounts unless the number of claims is such that their payment would exceed the Settlement Fund after costs and fees have been deducted. In that event, the awards paid to each Claimant will be proportionally reduced to prevent the total Settlement Fund from exceeding $2.2 million.” Id., p. 7.
“The Parties estimate that the cost of notice and administration will be approximately $30,000 to $50,000, and Defendant has agreed not to contest an application by Plaintiffs counsel to the Court for an award of costs and fees equal to one third of the Settlement Fund.” Id., p. 6. “Defendant has also agreed to pay and incentive award to Plaintiff in the amount of ... $5000 in recognition of his time and effort in this action, subject to Court approval.” Id.
ANALYSIS
A. Does The Court Have Jurisdiction to Consider This Motion?
Plaintiff argues that “[t]he Settlement Agreement should be preliminarily approved because Plaintiff faces substantial hurdles in establishing liability..... In particular, first Niagara consistently and vigorously argued that the Court lacked subject matter jurisdiction under 28 U.S.C. § 1332(d) because the amount in controversy did not exceed five million dollars, and this Court noted that this was an open issue.” Plaintiffs Memorandum of Law [92-1], pp. 11-12.
However, uncertainty as to subject matter jurisdiction cannot be treated merely as a factor to be weighed in the settlement equation. Unless subject matter jurisdiction is established, I cannot even consider the Uncontested Motion, muсh less approve it. “Without jurisdiction the court cannot proceed at all in any cause.” Steel Co. v. Citizens for a Better Environment,
“A plaintiff asserting subject matter jurisdiction has the burden of proving by a preponderance of the evidence that it exists.” Makarova v. United States,
Plaintiff asserts that the maximum class recovery if the claims of the potential settlement class were fully litigated would be $4,154,500 (plaintiffs Memorandum of Law [92-1], p. 14), which is below the $5 million “amount in controversy” threshold of 28 U.S.C. § 1332(d)(2). However, “we measure the amount in controversy as of the date of the complaint. Once jurisdiction has attached, it cannot be ousted by subsequent events.” Scherer v. Equitable Life Assurance Society of the United States,
At the time the action was commenced, the proposed class included those whose mortgages were “completely paid after July 19, 2007”. Complaint [1], ¶ 16. By contrast, the proposed settlement class is limited to those whose mortgages were “completely paid after July 19, 2010” (plaintiffs Memorandum of Law [92-1], p. 5), presumably because First Niagara asserted a three-year statute of limitаtions defense. If the maximum potential recovery by a class dating back to July 19, 2010 would exceed $4.1 million, it would not be unreasonable to assume that the maximum potential recovery by a class dating back to July 19, 2007 would exceed $5 million.
The fact that the amount in controversy was subsequently narrowed by First Niagara’s statute of limitations defense is irrelevant to the jurisdictional determination, since “affirmative defenses asserted on the merits may not be used to'Whittle down the amount in controversy”. Scherer,
Since “the party opposing jurisdiction must show ‘to a legal certainty’ that the amount recoverable does not meet the jurisdictional threshold”, Scherer,
However, in order to establish subject matter jurisdiction, he must also submit evidence demonstrating that “as of the date of filing the complaint or amended complaint” (28 U.S.C. § 1332(d)(7)), the citizenship at least one member of the potential class was adverse to that of First Niagara,
B. May the Proposed Class be Conditionally Certified?
“Before approving a class settlement agreement, a district court must first determine whether the requirements for class certification in Rule 23(a) and (b) have been satisfied.... Thus, the court must assess whether the proposed class satisfies Rule 23(a)’s four threshold requirements: (1) numerosity (‘the class is so numerous that joinder of all members is impracticable’), (2) commonality (‘there are questions of law or fact common to the class’), (3) typicality (‘the claims or defenses of the representative parties are typical of the claims or defenses of the class’), and (4) adequacy of representation (‘the representative parties will fairly and adequately protect the interests of the class’).” In re American International Group, Inc. Securities Litigation,
1. Rule 23(a)(1): Numerosity
Since “numerosity is presumed at a level of 40 members”, Consolidated Rail Corp. v. Town of Hyde Park,
2. Rule 23(a)(2): Commonality
“The commonality requirement is met if plaintiffs’ grievances share a common question of law or of fact.” Marisol A. v. Giuliani
3. Rule 23(a)(3): Typicality
“Typicality ... requires that the claims of the class representatives be typical of those of the class, and is satisfied when each class member’s claim arises from the same course of events, and each class member makes similar legal arguments to prove the defendant’s liability.” Marisol A.,
4. Rule 23(a)(4): Adequacy of Representation
Plaintiff argues that “there is no indication that [he] has any interests antagonistic to the Settlement Class. To the contrary, [he] has been actively protecting the interests of the class”. Plaintiffs Memorandum of Law [92-1], p. 19. However, for reasons discussed later in this opinion [pp. 14-21, infra ], I have concerns in that regard.
Rule 23(b)(3)
“Not only must each of the requirements set forth in Rule 23(a) be met, but certification of the class must also be deemed appropriate under one of the three subdivisions of Rule 23(b).” Brown v. Kelly,
Plaintiff alleges that he “obtained significant third party discovery from National Title Clearing, Inc. (‘NTC’), the vendor that prepared and presented the majority of the certificates of discharge at issue”
Plaintiff asserts that “every issue involved in the litigation is subject to common and generalized proof, to wit, the NTC data which identifies not only each class member but their respective statutory damages”. Id., p. 20. While that argument supports certification, it calls into question the reasonableness of the proposed settlement. See pp.'1721, infra.
C. Is There Probable Cause to Believe That the Pi-oposed Settlement is Fair, Adequate and Reasonable?
While there is a “strong judicial policy in favor of settlements, particularly in the class action context”, McReynolds v. Richards-Cantave,
The Uncontested Motion requests only preliminary, not final, approval of the settlement. Preliminary approval “is not tantamount to a finding that the settlement is fair and reasonable. It is at most a determination that there is what might be termed ‘probable cause’ to submit the proposal to class members and hold a full-scale hearing as to its fairness”. Traffic Executive Association,
“That said, preliminary approval is not simply a judicial ‘rubber stamp’ of the parties’ agreement.... Indeed, the Court must be particularly scrupulous because preliminary approval establishes an initial presumption of fairness.” Martin v. Cargill, Inc.
“The starting place for understanding the substantive requirements for preliminary approval is in reviewing the substantive requirements for final approval.” Rubenstein, Newberg on Class Actions, § 13:15 (5th ed.2015) (emphasis in original). In the Second Circuit, “there are nine factors that should be considered in determining the fairness of a proposed settlement: (1) the complexity, expense and likely duration of the litigation, (2) the reaction of the class to the settlement, (3) the stage of the proceedings and the amount of discovery completed, (4) the risks of establishing liability, (5) the risks of establishing damages, (6) the risks of maintaining the class action through the trial, (7) the ability of the defendants to withstand a greater judgment, (8) the range of reasonableness of the settlement fund in light of the best possible reсovery, (9) the range of reasonableness of the settlement fund to a possible recovery in light of all the attendant risks of litigation.” County of Suffolk v. Long Island Lighting Co.,
“[T]he court should consider the totality of these factors in light of the particular circumstance.” In re Global Crossing Securities and ERISA Litigation,
Factor 1: The Complexity, Expense and Likely Duration of the Litigation
Plaintiff argues that “[t]he Settlement Agreement provides substantial monetary benefits to the Settlement Class while avoiding the significant expenses and delays attendant to motion practice related to summary judgment and class certification, not to mention trial. Indeed, ‘[m]ost class actions are inherently complex and settlement avoids the costs, delays and multitude of other problems associated with them.’ Frank v. Eastman Kodak Co.,
I do not find that argument persuasive. See Martin,
Factor 2: The Reaction of the Class to the Settlement
Plaintiff argues that “[w]hile the reaction of absent class members cannot be conclusively gauged until notice has been sent, the fact that Plaintiff and his experience counsel support the Settlement Agreement is a strong indication that members of the Settlement Class will also view it positively.” Plaintiffs Memorandum of Law [92-1]. I do not accept that assertion at face value, for “[o]nce the named parties reach a settlement in a purported class action, they are always solidly in favor of their own proposal”. Kakani v. Oracle Corp.,
The fact that plaintiff and his attorneys support the settlement is hardly surprising,. given that they both stand to gain significantly more from the settlement than other class members. In addition to
Without prejudging plaintiffs entitlement to an incentive payment, that request gives me pause. “Payments to class representatives, while not foreclosed, should be closely scrutinized”, Ortiz v. Chop’t Creative Salad Co. LLC,
I am likewise concerned by counsel’s proposed fee application. “[T]he duty to investigate the provisions of the suggested settlement includes the obligation to explore the manner in which fees of class counsel are to be paid and the dollar amount for such services.” Strong v. Bell-South Telecommunications, Inc.,
Section 5.01 of the Settlement Agreement and Release [92-3] states that any unclaimed funds “shall revert back to First Niagara”. Therefore, “the extent of the defendant’s liability is wholly depen-dant upon the number of claims, the cost of administering the settlement and such fees and expenses as are assessed by the Court”. Parker v. Time Warner Entertainment Co., L.P.,
Factor 3: The Stage of the Proceedings and the Amount of Discovery Completed
Plaintiff asserts that “[t]he legal issues in this case have been thoroughly vetted .... Moreover, Plaintiff and Defendant have engaged in extensive discovery.” Plaintiffs Memorandum of Law [92-1], pp. 10-11. “To approve a proposed settlement ... it is enough for the parties to have engaged in sufficient investigation of the facts to enable the Court to intelligently make an appraisal of the Settlement”. Id., p. 11. However, the question is whether the Uncontested Motion provides enough information to enable me to make that intelligent appraisal.
Factor 4: The Risks of Establishing Liability
Plaintiff sends mixed signals as to this factor, stating on the one hand that he is “confident that he will prevail on class certification and summary judgment” (id., p. 10), but that “[о]n the other hand, Defendant could prevail on its legal arguments to defeat liability entirely, resulting in no recovery for class members”. Id., p. 14.
Plaintiff states that “NTC’s data production demonstrates that there are 5010 members of the Settlement Class, 2792 for whom certificates of discharge were presented more than thirty but less than sixty-one days late, 1137 for whom certificates of discharge were presented more than sixty but less than ninety-one days late, and 1081 for whom certificates of discharge were presented more than ninety days late”. Id., p. 5. Nothing more should be required to establish liability for penalties under the statutes at issue. “RPL § 275 and RPAPL § 1921 both clearly state that liability for penalties arises upon the mortgagor’s ‘failure’ to timely present the mortgage discharge for filing. Where the Legislature wished to condition a penalty upon a showing of ‘willful failure’, it said so.... It did not do so here, and I may not add to a statute language not employed by the Legislature.” Zink,
The only defense which plaintiff specifically discusses is lack of subject matter jurisdiction: “In particular, First Niagara insistently and vigorously argued that the Court lacked subject matter jurisdiction” (plaintiffs Memorandum of Law [92-1], p. 12); “[s]uch a substantial recovery merits approval of the proposed settlement, particularly in light of Defendant’s jurisdictional defense”. Id., p. 13. However, First Niagara’s assertion of the jurisdictional defense has been neither “consistent” nor “vigorous”. In fact, it did not initially assert the defense — instead, I raised the question sua sponte. Amended Report and Recommendation [51], p. 3. Moreover, it has nevеr moved to dismiss this action (in which it is now prepared to pay $2.2 million) on that ground. Since such a motion, if successful, would insulate it from class liability altogether,
Other than the jurisdictional defense, plaintiff points to no specific defenses which might preclude liability,
Factors 5-7: The Risks of Establishing Damages, Maintaining the Class Action Through the Trial, and the Ability of First Niagara to Withstand a Greater Judgment
Plaintiff states that he “does not anticipate significant hurdles in рroving each Settlement Class member’s damages or in maintaining the class action through trial...'. Nor is Plaintiff concerned that First Niagara cannot pay a substantial judgment.” Plaintiffs Memorandum of Law [92-1], p. 12.
Factors 8-9: The Range of Reasonableness of the Settlement Fund in Light of the Best Possible Recovery and the Attendant Risks of Litigation
“[T]he most significant factor for the district judge is the strength of plaintiffs’ case balanced against the settlement offer.... [H]e is required to explore the facts sufficiently to make an intelligent comparison between the amount of the compromise and the probable recovery.” Traffic Executive Association,
Plaintiff argues that “[t]he maximum potential recovery if the case were to be litigated to judgment by trial would be
Whichever figure is used, I fail to see why such a substantial discount from the maximum recovery is warranted, particularly where plaintiff claims he already has the information necessary to establish damages with certainty (plaintiffs Memorandum of Law [92-1], p. 12), is not concerned about First Niagara’s ability to pay a substantial judgment (id.), and fails to identify any specific defense which would warrant a reduction of that magnitude. ”[C]ourts may deny preliminary approval ... based on the settling parties’ failure to furnish the court with enough information and evidence to enable it to rationally assess the reasonableness of the proposed consideration.” Rubenstein, Newberg on Class Actions, § 13:15 (5th ed.).
For example, in Brown, the court denied preliminary approval where “[t]he parties offerfed] no viable way to gаuge the reasonableness of the Settlement Agreement”.
I share the Brown court’s concerns: if there are valid reasons for recommending the proposed settlement, they have not been adequately discussed in the Uncontested Motion.
D. Is the Proposed Notice to Class Members Sufficient?
Rule 23(c)(2)(B) requires “the best notice that is practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort”. “[W]hen notice is a person’s due, process which is a mere gesture is not due process. The means employed must be such as one desirous of actually informing the absentee might reasonably аdopt to accomplish it.” Hecht v. United Collection Bureau, Inc.,
Proper notice is particularly important in this case, where the claims of all class members “who have not timely and properly requested exclusion” from the class will be extinguished. Settlement Agreement and Release [92-3], p. 15 of 62, § 5.05. In order to request exclusion, the party must submit notify the Settlement Administrator in writing (Notice of Pen-dency and Proposed Settlement [92-3], pp. 34-35 of 62, § 16) — which obviously presupposes that the party has received notice of the proposed settlement.
Plaintiff claims that “using NTC’s data, the Parties have identified the precise mortgagors who paid of[f] their mortgage after July 19, 2010 and for whom a certificate of discharge was not timely presented”. Plaintiffs Memorandum of Law [92— 1], p. 19. However, since plaintiff elsewhеre states that NTC “prepared and presented the majority of the certificates of discharge at issue” {id., p. 2, emphasis added), it is unclear whether plaintiff has identified the entire class.
While plaintiff “proposes to provide direct mailed notice to members of the Settlement Class” {id., p. 23), he admits that “First Niagara only has, for a portion of the class, the mailing address of the home whose mortgage was satisfied
“To the extent ... that individual members cannot be identified, notice by publication is sufficient.” Spector v. City of New York,
In addition to the method of notice to class members, I have concerns with its content. The notice “must contain information that a reasonable person would consider to be material in making an informed, intelligent decision of whether to opt out or remain a member of the class and be bound by the final judgment”. In re Nissan Motor Corp. Antitrust Litigation,
Moreover, while “the notice should be scrupulously neutral”, Traffic Executive Association,
CONCLUSION
“The Court recognizes fully that it is unusual to deny an application for preliminary approval of a class action settlement agreement.” Brown,
Unless otherwise ordered by Judge Ar-cara, any objections to this Report and Recommendation must be filed with the clerk of this court by November 6, 2015 (applying the time frames set forth in Rules 6(a)(1)(C), 6(d), and 72(b)(2)). Any requests for extension of this deadline must be made to Judge Arcara. A party who “fails to objeсt timely ... waives any right to further judicial review of [this] decision”. Wesolek v. Canadair Ltd.,
Moreover, the district judge will ordinarily refuse to consider de novo arguments, case law and/or evidentiary material which could have been, but were not, presented to the magistrate judge in the first instance. Paterson-Leitch Co. v. Massachusetts Municipal Wholesale Electric Co.,
The parties are reminded that, pursuant to Rule 72(b) and (c) of this Court’s Local Rules of Civil Procedure, written objections shall “specifically identify the portions of the proposed findings and recommendations to which objection is made and the basis for each objection ... supported by legal authority”, and must include “a written statement either certifying that the objections do not raise new legal/factual arguments, or identifying the new arguments and explaining why they were not raised to the Magistrate Judge”. Failure to comply with these provisions may result in the district judge’s refusal to consider the objections.
Notes
. Bracketed references are to CM/ECF docket entries.
. 28 U.S.C. § 1715 requires that First Niagara provide notice of the proposed settlement to "appropriate state and federal officials''. The Uncontested Motion does not indicate whether this has been done.
. “First Niagara's corporate headquarters are in Buffalo, New York”. Amended Complaint [21], ¶ 8; Amended Answer to Amended Complaint [83], ¶ 8. "[A] national bank is a citizen only of the state in which its main office is located, and not the state in which its principal place of business is located, if that state differs from the location of its main office.” Excelsior Funds, Inc. v. JP Morgan Chase Bank, N.A.,
. Even if I were to consider awarding fees based on percentage of recovery, I would cross-check that determination by reference to counsel's contemporaneous time records. See Augustyniak v. Lowe’s Home Center LLC,
. Class relief would be foreclosed in state court. See N.Y.C.P.L.R. § 901(b) (“Unless a statute creating or imposing a penalty, or a minimum measure of recovery specifically authorizes the recovery thereof in a class action, an action to recover a penalty, or minimum
. Plaintiff does not suggest that the settlement is justified by the preemption argument raised in First Niagara’s motion to dismiss [37], which this and other courts have rejected. [51, 59]. See Zink,