Sixth Circuit Addresses Pre-Certification and Post-Certification Engagement of Potential Class Members in Class Actions

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Appellee Thomas Fox and others failed to pay their delinquent property taxes in certain Michigan counties and had their property foreclosed on and sold. However, the counties kept all of the sale proceeds and not just the money that was owed. In some cases, the counties kept tens of thousands of dollars beyond what was owed. Therefore, Fox brought a class action seeking recovery of the surplus funds.

After learning about Fox’s class action suit, Asset Recovery Inc. (“ARI”) contacted potential plaintiffs about pursuing relief on their behalf. ARI eventually retained a law firm to represent the claimants that they were able to recruit. Soon after, the district court then certified Fox’s class action. ARI disagreed with the district court’s view and thought it would be best for its clients to seek individual relief and not the class action. Therefore, ARI instructed the law firm it hired to opt-out the ARI-represented claimants from the class and pursue individual relief on behalf of the claimants.

Fox filed a motion objecting to the opts-outs and the district court granted the motion ordering ARI (1) to stop contacting class members and (2) allow class members to back out of their agreements with ARI. ARI appealed the district court’s decision to the Sixth Circuit.

The Sixth Circuit affirmed in part, vacated in part, and remanded. The Sixth Circuit agreed with the district court and affirmed its order barring communications between ARI and class members because ARI’s communications were misleading and abusive. In its opinion, the Sixth Circuit ruled that ARI’s communications were abusive for two reasons: (1) “ARI distorted the facts surrounding the claims process when it contacted potential claimants” and (2) “ARI misled class members and coerced them into hiring ARI before the district court sent notice. ARI then opted them out of the class, apparently without even telling them about the class action.”

The Sixth Circuit then addressed the curative notice that notified the class members that they could rescind any agreement with ARI or the law firm that ARI retained. The Sixth Circuit disagreed with the district court with respect to the curative notice because it was too broad in nature. The Sixth Circuit stated, “The district court acted within its authority by letting class members who contracted with ARI after the class was certified rescind their agreements … But the district court went a step too far in allowing class members who hired ARI before the class was certified to rescind their agreements.”

Therefore, this decision is important because the Sixth Circuit reaffirmed the distinction between contacting class members before and after class certification.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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