Published on:

Barnett v. Experian-Class Action Defense Cases: Texas Court Decertifies Class Action Under Federal Fair Debt Collection Practices Act (FDCPA) Decertified Because Defendant In Bankruptcy

Federal Court Holds Decertification of Class Action Appropriate Where Defense Lacks Financial Ability to Satisfy Claims

Plaintiffs filed a class action against defendants, including The Credit Store, alleging violations of the federal Fair Debt Collection Practices Act (FDCPA); a Texas federal district court certified the class action, but the defense delayed implementation of the certification order by filing a bankruptcy petition. The district court decertified the class action against The Credit Store sua sponte because it lacked the financial ability to satisfy any judgment against it. Barnett v. Experian Information Solutions, Inc., 236 F.R.D. 307 (E.D. Tex. 2006). The district court summarized the allegations against The Credit Store as follows: “The plaintiffs contend that the defendant purchased old debts and changed the date of last activity on the accounts such that they could be reported to credit reporting agencies under the Fair Credit Reporting Act. This gave the debt collectors leverage to collect the obsolete debts.” Id., at 308.

The Court explained that The Credit Store’s bankruptcy had been converted to a Chapter 7 proceeding that involved $50 million in secured claims but only $10 million in assets. Barnett, at 308. Plaintiffs obtained an order for relief from the automatic stay so that the class action could proceed against The Credit Store, but only against insurance proceeds. The parties estimated that The Credit Store had only $5 million in insurance coverage available as to all claims against it. Id. This concerned the court: “Given the limited insurance coverage and the bleak financial condition of The Credit Store, the court questions whether this litigation should proceed as a class action.” Id. The district court concluded that decertification was warranted because “any hope for recovery for the class is speculative at best.” Id.

NOTE: The court ordered that notice of its decision be given to absent class members because “[t]here is a risk that absent class members have relied on the existence of this case to protect their rights, given that the filing of the case tolls the statute of limitations.” Barnett, at 308.

Download PDF file of Barnett v. Experian