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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ----------------------------------------------------------------x VANESSA WILLIAMS and KORY TURNER, individually and on behalf of all persons similarly situated, Plaintiffs, vs. EQUITABLE ACCEPTANCE CORPORATION, SLF CENTER, LLC, INTEGRA STUDENT SOLUTIONS, LLC, and JEFFREY D. HENN, Defendants. ----------------------------------------------------------------x
No. 18-CV-07537 (NRB)
PLAINTIFFS’ MEMORANDUM OF LAW IN SUPPORT OF PROVISIONAL CERTIFICATION OF A SETTLEMENT CLASS AND
PRELIMINARY APPROVAL OF CLASS ACTION SETTLEMENT
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TABLE OF CONTENTS Page
I. PRELIMINARY STATEMENT .........................................................................................1
II. BACKGROUND .................................................................................................................2
A. Allegations in the Complaint ...................................................................................2
B. This Litigation ..........................................................................................................3
C. Other Lawsuits and Investigations Against EAC ....................................................4
D. Settlement Negotiations ...........................................................................................5
E. Summary of the Settlement Terms ..........................................................................6
F. Proposed Allocation Plan for Monetary Awards to Class Members .......................8
G. Proposed Notice to Class Members, and Settlement Administration ......................9
H. Counsel’s Zealous Work on Behalf of the Class .....................................................9
III. SETTLEMENT APPROVAL PROCESS AND STANDARD OF REVIEW ..................10
A. The Settlement Is Fair, Reasonable, and Adequate ...............................................13
1. Rule 23(e)(2)(A): Named Plaintiffs and Class Counsel Have Adequately Represented the Class .............................................................13
2. Rule 23(e)(2)(B): The Settlement Proposal Was Negotiated at Arm’s Length .............................................................................................14
3. Rule 23(e)(2)(C): The Relief Provided for the Class Is Adequate .............15
(a) Rule 23(e)(2)(C)(i): Costs, Risks, and Delay of Trial and Appeal ............................................................................................15
(b) Rule 23(e)(2)(C)(ii): Effectiveness of Proposed Method of Claims Processing ..........................................................................21
(c) Rule 23(e)(2)(C)(iii): Attorneys’ Fees ...........................................21
(d) Rule 23(e)(2)(C)(iv): Agreements Made in Connection with Proposal..........................................................................................24
4. Rule 23(e)(2)(D): The Proposal Treats Class Members Equitably Relative to Each Other ...............................................................................24
5. Additional Grinnell Factors .......................................................................26
B. Rule 23(e)(1): Proposed Notice to the Class ..........................................................27
1. Notice to the Class .....................................................................................27
2. Telephonic Fairness Hearing .....................................................................30
C. Provisional Class Certification Should Be Granted for Settlement Purposes ........30
1. The Proposed Class Meets the Requirements of Rule 23(a) ......................31
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(a) The Proposed Class Is Sufficiently Numerous ..............................31
(b) There Are Common Questions of Law and Fact ...........................31
(c) Named Plaintiffs’ Claims Are Typical of Those of the Class Members ...............................................................................33
(d) The Named Plaintiffs Are Adequate Representatives ...................34
D. The Proposed Classes Meet the Requirements of Rule 23(b) ................................34
1. The Court Should Certify a Class Seeking Injunctive Relief Under Rule 23(b)(2) ..............................................................................................34
2. The Court Should Certify a Class Seeking Damages Under Rule 23(b)(3) ......................................................................................................35
(a) Common Questions Predominate ..................................................35
(b) A Class Action Is the Superior Method of Adjudication ...............37
(c) The Proposed Class Is Ascertainable .............................................38
E. NYLAG and Quinn Emanuel Satisfy the Rule 23(g) Prerequisites for Appointment as Class Counsel ..............................................................................39
IV. CONCLUSION ..................................................................................................................40
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TABLE OF AUTHORITIES
Page Cases
Amchem Prod., Inc. v. Windsor, 521 U.S. 591 (1997) ................................................................................................................. 38
In re AOL Time Warner, Inc., 2006 WL 903236 (S.D.N.Y. Apr. 6, 2006).............................................................................. 28
In re AT&T Mobility Wireless Data Servs. Sales Tax Litig., 789 F. Supp. 2d 935 (N.D. Ill. 2011) ....................................................................................... 28
In re Austrian and German Bank Holocaust Litig., 80 F. Supp. 2d 164 (S.D.N.Y. 2000) ...................................................................................... 20
Baffa v. Donaldson, Lufkin & Jenrette Sec. Corp., 222 F.3d 52 (2d Cir. 2000)....................................................................................................... 34
Caridad v. Metro–N. Commuter R.R., 191 F.3d 283 (2d Cir. 1999)..................................................................................................... 33
Charron v. Pinnacle Grp. N.Y. LLC, 874 F. Supp. 2d 179 (S.D.N.Y. 2012)................................................................................ 16, 20
Charron v. Wiener, 731 F.3d 241 (2d Cir. 2013)............................................................................................... 16, 21
City of Detroit v. Grinnell Corp., 495 F.2d 448 (2d Cir. 1974)..................................................................................................... 11
Clark v. Ecolab, Inc., 2009 WL 6615729 (S.D.N.Y. Nov. 27, 2009) ......................................................................... 11
In re Colgate-Palmolive Co. ERISA Litig., 6 F. Supp. 3d 344 (S.D.N.Y. 2014) .......................................................................................... 23
Consol. Rail Corp. v. Town of Hyde Park, 47 F.3d 473 (2d Cir. 1995)....................................................................................................... 31
In re Currency Conversion Fee Antitrust Litig., 265 F. Supp. 2d 385 (S.D.N.Y. 2003)................................................................................ 17, 20
D’Amato v. Deutsche Bank, 236 F.3d 78 (2d Cir. 2011)................................................................................................. 11, 14
Damassia v. Duane Reade, Inc., 250 F.R.D. 152 (S.D.N.Y. 2008) ............................................................................................. 34
In re Domestic Airline Travel Antitrust Litig., 322 F. Supp. 3d 64 (D.D.C. 2018) ........................................................................................... 29
Dorrance v. ARS Nat. Servs., Inc., 2015 WL 2213514 (M.D. Pa. May 11, 2015) .......................................................................... 20
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Francisco Corte v. Fig & Olive Founders LLC, 2015 WL 12591677 (S.D.N.Y. June 24, 2015) ....................................................................... 31
Frank v. Eastman Kodak Co., 228 F.R.D. 174 (W.D.N.Y. 2005) ............................................................................................ 19
Garland v. Cohen & Krassner, 2011 WL 6010211 (E.D.N.Y. Nov. 29, 2011) ................................................................... 17, 26
In re General Motors LLC Ignition Switch Litig., 2020 WL 7481238 (S.D.N.Y. Dec. 18, 2020) ......................................................................... 30
In re Glob. Crossing Secs. & ERISA Litig., 225 F.R.D. 436 (S.D.N.Y. 2004) ............................................................................................. 27
Goldberger v. Integrated Res., Inc., 209 F.3d 43 (2d Cir. 2000)........................................................................................... 11, 22, 23
Grice v. Pepsi Beverages Co., 363 F. Supp. 3d 401 (S.D.N.Y. 2019)...................................................................................... 23
Gross v. Washington Mut. Bank, F.A., 2006 WL 318814 (E.D.N.Y. Feb. 9, 2006).............................................................................. 26
In re GSE Bonds Antitrust Litig., 414 F. Supp. 3d 686 (S.D.N.Y. 2019)................................................................................ 12, 15
Guippone v. BH S&B Holdings LLC, 2016 WL 5811888 (S.D.N.Y. Sept. 23, 2016) ......................................................................... 25
Hadel v. Gaucho, LLC, 2016 WL 1060324 (S.D.N.Y. Mar. 14, 2016) ................................................................... 11, 12
Hall v. AT&T Mobility LLC, 2010 WL 4053547 (D.N.J. Oct. 13, 2010)............................................................................... 29
Harper v. Law Office of Harris & Zide LLP, 2017 WL 995215 (N.D. Cal. Mar. 15, 2017) ........................................................................... 20
In re Initial Public Offering Secs. Litig., 243 F.R.D. 79 (S.D.N.Y. 2007) ............................................................................................... 13
Johnson v. Brennan, 2011 WL 4357376 (S.D.NY. Sept. 16, 2011) .......................................................................... 27
In re LIBOR-Based Financial Instruments Antitrust Litig., 327 F.R.D. 483 (S.D.N.Y. 2018) ............................................................................................. 11
Marcoux v. Szwed, 2017 WL 679150 (D. Me. Feb. 21, 2017) ............................................................................... 20
Marisol A. v. Giuliani, 126 F.3d 372 (2d Cir. 1997)..................................................................................................... 33
Masters v. Wilhelmina Model Agency, Inc., 473 F.3d 423 (2d Cir. 2007)..................................................................................................... 26
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Mazzei v. Money Store, 829 F.3d 260 (2d Cir. 2016)..................................................................................................... 33
McBean v. City of New York, 233 F.R.D. 377 (S.D.N.Y. 2006) ............................................................................................. 23
Meredith Corp. v. SESAC, LLC, 87 F. Supp. 3d 650 (S.D.N.Y. 2015) ........................................................................................ 22
Millea v. Metro-North Railroad Co., 658 F.3d 154 (2d Cir. 2011)..................................................................................................... 23
Moore v. PaineWebber, Inc., 306 F.3d 1247 (2d Cir. 2002)................................................................................................... 16
Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306 (1950) ................................................................................................................. 28
In re Namenda Direct Purchaser Antitrust Litig., 462 F. Supp. 3d 307 (S.D.N.Y. 2020)...................................................................................... 12
In re Nasdaq Market-Makers Antitrust Litig., 176 F.R.D. 99 (S.D.N.Y. 1997) ............................................................................................... 12
Newman v. Stein, 464 F.2d 689 (2d Cir. 1972)..................................................................................................... 19
Noll v. eBay, Inc., 309 F.R.D. 593 (N.D. Cal. 2015) ............................................................................................. 29
O’Connor v. AR Res., Inc., 2012 WL 12743 (D. Conn. Jan. 4, 2012) ................................................................................. 26
In re Online DVD-Rental Antitrust Litig., 779 F.3d 934 (9th Cir. 2015) ................................................................................................... 29
Ortega v. Uber Tech., Inc., 2018 WL 4190799 (E.D.N.Y. May 4, 2018............................................................................. 29
In re PaineWebber Ltd. P’ships Litig., 171 F.R.D. 104 (S.D.N.Y. 1997) ............................................................................................. 16
In re Petrobras Sec., 862 F.3d 250 (2d Cir. 2017)..................................................................................................... 38
Proud v. Shakhnes, 569 U.S. 918 (2013) ................................................................................................................. 39
In re Prudential Sec., Inc., 1995 WL 798907 (S.D.N.Y. Nov. 20, 1995) ........................................................................... 17
Ramiro Aviles v. S & P Glob., Inc, 380 F. Supp. 3d 221 (S.D.N.Y. 2019)...................................................................................... 37
In re Restasis (Cyclosporine Ophthalmic Emulsion) Antitrust Litig., 2020 WL 6193857 (E.D.N.Y. Oct. 7, 2020) ............................................................................ 30
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Robidoux v. Celani, 987 F.2d 931 (2d Cir. 1993)..................................................................................................... 33
Sand v. Greenberg, 2011 WL 1338196 (S.D.N.Y. Mar. 22, 2011) ......................................................................... 24
Seekamp v. It’s Huge, Inc., 2012 WL 860364 (N.D.N.Y. 2012) ......................................................................................... 37
Shakhnes ex rel. Shakhnes v. Eggleston, 740 F. Supp. 2d 602 (S.D.N.Y. 2010)...................................................................................... 39
Shakhnes v. Berlin, 689 F.3d 244 (2d Cir. 2012)..................................................................................................... 39
Shapiro v. JPMorgan Chase & Co., 2014 WL 1224666 (S.D.N.Y. Mar. 24, 2014) ......................................................................... 23
In re Signet Jewelers Ltd. Sec. Litig., 2018 U.S. Dist. LEXIS 199808 (S.D.N.Y. Nov. 26, 2018) ..................................................... 30
Sims v. Bank of Am. Corp., 2008 WL 479988 (E.D.N.Y. Feb. 19, 2008)............................................................................ 39
Sykes v. Mel S. Harris & Assocs. LLC, 285 F.R.D..279 (S.D.N.Y. 2012) ....................................................................................... 36, 38
Sykes v. Mel S. Harris & Assocs. LLC, 780 F.3d 70 (2d Cir. 2015)........................................................................................... 31, 34, 36
Sykes v. Mel Harris & Assocs. LLC, 2016 WL 3030156 (S.D.N.Y. May 24, 2016) ......................................................................... 17
In re U.S. Foodservice Inc. Pricing Litig., 729 F.3d 108 (2d Cir. 2013)......................................................................................... 36, 37, 38
Vasto v. Credico (USA) LLC, 2016 WL 2658172 (S.D.N.Y. May 5, 2016) ........................................................................... 28
Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011) ........................................................................................................... 32, 35
Wal-Mart Stores, Inc. v. Visa U.S.A. Inc., 396 F.3d 96 (2d Cir. 2005)................................................................................................. 11, 28
Weil v. Long Island Sav. Bank, 188 F. Supp. 2d 258 (E.D.N.Y. 2002) ..................................................................................... 17
Weinberger v. Kendrick, 698 F.2d 61 (2d Cir. 1982)....................................................................................................... 30
Yuzary v. HSBC Bank USA, N.A., 2013 WL 1832181 (S.D.N.Y. Apr. 30, 2013).......................................................................... 12
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Statutory Authorities 15 U.S.C. § 1637 ............................................................................................................................. 3 15 U.S.C. § 1638 ............................................................................................................................. 3 15 U.S.C. § 1640 ............................................................................................................... 20, 24, 35 18 U.S.C. § 1962 ................................................................................................................. 3, 17, 20 N.Y. Gen. Bus. Law § 349 .................................................................................................. 3, 24, 35
Rules and Regulations Fed. R. Civ. P. 23 ................................................................................................................... passim
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I. PRELIMINARY STATEMENT
Named Plaintiffs Vanessa Williams and Kory Turner, individually and on behalf
approximately 80,000 putative class members (the “Class Members,” together, the “Class”),
brought this suit to stop Defendants’ scheme to defraud student loan borrowers by extending
deceptive loans to finance scam debt relief services. After two-and-a-half years of zealous
litigation and extensive arm’s-length negotiations, Plaintiffs entered into a class-wide Settlement
Agreement with Defendants Equitable Acceptance Corporation (“EAC”) and Jeffrey Henn
(“Henn,” and with EAC, “Defendants”) that resolves all claims against Defendants. Plaintiffs
now seek provisional certification of the settlement class and preliminary approval of the
settlement. Defendants consent to the grant of this motion.1
The proposed settlement should be approved because it provides to the Class substantial
monetary relief and critical non-monetary relief. Specifically, under the Settlement Agreement:
Defendants will pay $1 million into a settlement fund; EAC ceased all collections from all Class
Members as of February 12, 2021, relief valued at $1.1 million; EAC will not sell any Class
Member accounts that it holds, with the effect that no other entity will be able to collect on those
accounts; EAC will delete all credit reporting by EAC on Class Members’ accounts; EAC will
transfer to the Class all claims it holds against the Dealers; and EAC will cooperate with Class
Counsel to assist Borrowers whose contracts have been assigned to Dealers. The settlement is
particularly valuable to the Class not only because proceeding to trial would require significant
time, resources, and litigation risk, but also because Defendants’ current and projected lack of
financial resources makes it likely that even successful litigation to judgment could ultimately
result in little or no monetary relief for the Class.
1 Defendants deny the allegations against them and do not admit fault.
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Because the proposed class meets all of Rule 23’s requirements and the proposed
settlement satisfies all of the criteria for preliminary approval, Plaintiffs respectfully request that
the Court:
1. grant preliminary approval of the proposed Settlement Agreement and Allocation Plan;
2. provisionally certify a Class for settlement purposes under Fed. R. Civ. P. 23(b)(2) and (b)(3), as defined below, and appoint New York Legal Assistance Group (“NYLAG”) and Quinn Emanuel, Urquhart & Sullivan, LLP (“Quinn Emanuel”) (together, “Class Counsel”) as Class Counsel, and Vanessa Williams and Kory Turner as the class representatives; and
3. approve the proposed notice plan and direct the provision of notice to the Class.
A Proposed Order is attached for the Court’s consideration as Exhibit 5 to the Declaration of
Danielle Tarantolo.
II. BACKGROUND
A. Allegations in the Complaint2
Plaintiffs Vanessa Williams and Kory Turner brought this action on behalf of themselves
and a class of approximately 80,000 federal student loan borrowers (“Borrowers” or “Class
Members”) harmed by Defendants’ scheme to sell and finance sham student loan debt relief
services (“Services”). Plaintiffs alleged that EAC and Henn masterminded the Scheme by
contracting with third-party companies (“Dealers”) that sold the purported Services to Borrowers
at wildly inflated prices, funded by usurious financing from EAC. Second Amended Complaint
(“SAC”), ECF No. 119, ¶¶ 281-397.
Specifically, in furtherance of the Scheme, the Dealers—whose successful operation
required misleading Borrowers as to the value of the Services and nature of EAC’s financing—
2 A more detailed description of the allegations of the Complaint is set forth in the Court’s order denying EAC’s
motion to dismiss Plaintiffs’ RICO claims, ECF No. 73.
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made false promises of “loan forgiveness,” id. ¶¶ 77-87, misled Borrowers about their Servicers
and the status of their federal student loan repayment, id. ¶¶ 100, 105-108, 148, never disclosed
that the Borrowers could sign up for the same services in minutes on their own or with free help
from their federal loan Servicer, id. ¶¶ 97-100, 128-144, and concealed from Borrowers the
nature of the financing offered to pay for these Services, id. ¶¶ 133-144. If Defendants had fully
disclosed and accurately described the purported Services and financing terms, the Borrowers
never would have accepted them. Id. ¶¶ 92, 410-510.
Once the Dealers induced Borrowers to purchase the Services for $1,300, based on these
and other misrepresentations, the Dealers referred Borrowers to EAC for financing of the cost of
the Services. EAC extended a new loan (“Credit Plan”) to each Borrower in the form of a maxed-
out “line of credit” for the full price of the Services, with an annual interest rate of up to 21%,
saddling Borrowers with additional, unnecessary debt on deceptive terms. Id. ¶¶ 5, 173-181.
EAC collected millions of dollars from Borrowers pursuant to the Credit Plans; EAC also
assigned some Borrowers’ contracts to Dealers, who have attempted to collect additional sums
from Borrowers. Id. ¶¶ 218, 240, 254.
Defendants’ actions caused significant harm to Borrowers, including money paid to the
Dealers and EAC on the Credit Plans, negative credit reporting, and, in many cases, increased or
defaulted federal student loan balances and significant emotional distress. Id. ¶¶ 251-264.
B. This Litigation
On August 17, 2018, Ms. Williams and Mr. Turner filed this lawsuit, bringing claims on
behalf of themselves and the proposed class under, inter alia, the Racketeer Influenced and
Corrupt Organizations Act (RICO) (18 U.S.C. §§ 1962(c), 1962(d)), the Truth in Lending Act
(TILA) (15 U.S.C. §§ 1637(a), 1637(b), 1638(a)), New York General Business Law § 349,
common law fraudulent inducement, and usury on behalf of New York Borrowers. SAC
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¶¶ 523-611.3
EAC moved to dismiss Plaintiffs’ RICO claims on November 19, 2018, ECF No. 23, and,
after Plaintiffs filed an Amended Complaint, ECF No. 30, moved again on March 11, 2019, ECF
No. 37. After oral argument, the Court denied EAC’s motion to dismiss Plaintiffs’ RICO claims
on March 11, 2020. ECF No. 73.
Plaintiffs filed their Second Amended Complaint on June 10, 2020, alleging RICO and
aiding and abetting fraudulent inducement claims against Henn, and fraudulent conveyance
claims against both EAC and Henn and his wife. ECF No. 95 (under seal, publicly filed at ECF
No. 119). Simultaneously, Plaintiffs moved for a preliminary injunction to stop EAC and the
Henns from transferring additional funds out of reach of the Class. ECF No. 109. EAC then filed
a motion to dismiss Plaintiffs’ fraudulent conveyance claim, ECF No. 122, and the Henns filed a
motion to dismiss all claims against them. ECF No. 143. On January 14, 2021, this Court denied
Jeffrey Henn’s motion to dismiss the RICO and aiding and abetting fraudulent inducement
claims against him, but denied Plaintiffs’ motion for a preliminary injunction and granted EAC
and the Henns’ motions to dismiss the fraudulent conveyance claims against them. ECF No. 164.
C. Other Lawsuits and Investigations Against EAC
During the pendency of this litigation, numerous law enforcement agencies (including the
Federal Trade Commission and state agencies of Colorado, Massachusetts, Minnesota, New
Hampshire, New York, and Virginia) filed actions against and entered into settlement
agreements with Defendant EAC based on allegations substantially similar to those asserted by
3 The Complaint also named as defendants the two Dealers who sold the Services to the Named Plaintiffs, SLF
Center, LLC and Integra Student Solutions, LLC. These defendants failed to appear in this action and thereby defaulted. See Clerk’s Cert. of Default as to Defendant SLF Center, LLC, ECF No. 45. This settlement does not resolve claims against these Defendants.
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Plaintiffs.4 Declaration of Danielle Tarantolo (“Tarantolo Decl.”) ¶ 57; see also ECF No. 57-1 at
6-7, 24-29 (comparing Plaintiffs’ allegations with law enforcement allegations).
While these patchwork consent judgments provided some relief to Class Members and
prevented EAC from offering any new Credit Plans, they were unable to provide comprehensive
relief to the Class. Specifically, the consent judgments did not prevent EAC from collecting
payments on existing Credit Plans for a majority of the Class Members. Moreover, in each
instance, although regulators assessed substantial fines against EAC, they ultimately reduced the
judgment EAC was required to pay based on EAC’s inability to pay.5 Specifically, the Federal
Trade Commission and New York and Minnesota Attorney General’s Offices assessed nearly
thirty million dollars of penalties against EAC, but suspended all but $1 million (FTC and
Minnesota) and $225,000 (New York) based on EAC’s demonstrated lack of financial resources.
Similarly, Pennsylvania and Virginia assessed $930,000 and $5.5 million in penalties, and
suspended all but $30,000 and $50,000, respectively. Tarantolo Decl. ¶ 58.
D. Settlement Negotiations
After the December 9, 2019 oral argument on EAC’s motion to dismiss the RICO claims,
the Parties began settlement negotiations. Id. ¶ 14. Upon the Parties’ representations that
negotiations were proceeding, the Court deferred decision on EAC’s Motion to Dismiss for
4 Stipulation as to Entry of Order for Permanent Injunction, Monetary Relief and Final Judgment as to Defendant Equitable Acceptance Corporation, Federal Trade Commission et al. v. Manhattan Beach Venture, LLC, et al, No. 19 Civ. 7849 (C.D. Cal.), ECF No. 4 (Sept. 11, 2019); Stipulation as to Entry of Order for Permanent Injunction, Monetary Relief and Final Judgment as to Equitable Acceptance Corporation, Federal Trade Commission v. Student Advocates Team, LLC, et al., No. 19 Civ. 1728 (C.D. Cal.), ECF No. 5 (Sept. 11, 2019); Stipulated Final Judgment and Order as to Equitable Assurance Corporation, New York v. Debt Resolve Inc. et al., No. 18 Civ. 9812 (AJN) (S.D.N.Y.), ECF No. 112 (Aug. 12, 2019); Final Judgment by Consent, Massachusetts v. Equitable Acceptance Corporation, No. 19-84CV025198 (Sup. Ct. Aug. 7, 2019); Assurance of Voluntary Compliance, Pennsylvania v. Equitable Acceptance Corporation (Allegheny County Court of Common Pleas Aug. 4, 2020); Consent Order, In re Equitable Acceptance Corporation, No. 17-239 (N.H. Baking Dep’t Mar. 3, 2020); Stipulated Final Agency Order, In re Equitable Acceptance Corporation, Colorado Uniform Credit Code Admin. (Feb. 11, 2021).
5 See ECF No. 114 (Pls. Mem. Of Law In Support of Mot. for Preliminary Injunction), at 14-15.
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multiple months. ECF No. 64. On March 3, 2020, the Parties attended an in-person settlement
conference before Magistrate Judge Hon. Sarah Netburn, which Plaintiff Vanessa Williams
attended; however, the Parties were unable to reach a settlement. Tarantolo Decl. ¶ 15.
Following additional discovery and motion practice, in November 2020 the Parties
entered settlement negotiations for a second time. Id. ¶ 16. The Parties engaged in rigorous,
contested settlement discussions throughout the subsequent three months as to both monetary
and non-monetary settlement terms. Id. ¶ 17. The Parties’ negotiations largely focused on EAC’s
financial condition and Defendants’ ability to satisfy a judgment. Id. ¶ 18. Plaintiffs reviewed
financial information and documents provided by EAC to assess EAC’s financial resources and
ultimately concluded, as EAC has represented, that the company had minimal resources with
which to settle or satisfy a litigated judgment. Id. ¶ 19. Henn also represented to Plaintiffs that he
would be unable to satisfy a judgment of the scale of damages at issue in this action. Id. ¶ 20. In
early February 2021, the Parties reached a settlement in principle and the Court approved the
Parties’ joint settlement plan on February 9, 2021. ECF No. 168. The Parties executed the
Settlement Agreement on February 17, 2021. Tarantolo Decl. ¶ 23; id. Ex. 1 (the “Settlement
Agreement”).
E. Summary of the Settlement Terms
If approved, the Settlement Agreement would resolve all claims against Defendants
asserted by the proposed settlement Class, which comprises all individuals who obtained a Credit
Plan from EAC to finance student loan assistance services. There are 79,656 Class Members. Id.
¶ 25. Each Class Member electronically signed a Credit Plan, materially identical documents
titled “Equitable Acceptance Revolving Credit Plan,” through which EAC extended credit to
each Class Member on the same terms, with the only differences being the Class Members’
identifying information, the interest rate, and certain immaterial terms. Id. ¶¶ 10-11.
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To settle this action, Defendants have agreed to pay one million dollars ($1,000,000) into
a settlement fund (the “Settlement Fund”). At least 75% of the Settlement Fund ($750,000) will
be used to pay distributions to the Class Members in accordance with the Allocation Plan; the
remaining 25% of the Settlement Fund (no more than $250,000) will be used to pay
administration expenses (capped at $81,500), service awards of $3,000 to each of the Named
Plaintiffs, and reasonable attorneys’ fees and costs to be sought in connection with final approval
of approximately $162,500. Settlement Agreement ¶ II.A.1-6. To the extent funds remain in the
Settlement Fund after distribution, the Class Administrator and Class Counsel will together
determine whether to make any further distributions consistent with the Allocation Plan or issue
a cy pres award; under no circumstances will any of the money in the Settlement Fund revert to
Defendants. Id. ¶ II.A.7.
EAC has already ceased collecting on all outstanding Credit Plans or accepting any other
payments towards the Credit Plans effective February 12, 2021, and cessation of collections
becomes permanent upon final approval. Id. ¶¶ II.B.1-6. Cessation of collections provides
substantial relief to the Class, valued at approximately $1.1 million in foregone collections.
Tarantolo Decl. ¶ 22. Indeed, EAC’s immediate cessation (even in advance of a fully executed
stipulation of settlement, and well in advance of preliminary approval) was a material term of the
settlement on which Plaintiffs insisted. Id. ¶ 21. EAC has further agreed not to sell, assign, or
transfer any outstanding Credit Plans to the Dealers or to any other party, and will not otherwise
take any action that would permit any party to claim a right to collect on any Credit Plan.
Settlement Agreement ¶¶ II.C.1-4. If EAC does receive any payments after February 12, 2021, it
must return the payment to the Class Member within ten days. Id. ¶ II.B.2. If EAC does not
return the payment, it must deposit an additional sum equal to twice the amount collected into
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the Settlement Fund. Id. ¶ II.A.1.b. Plaintiffs’ agreement to the Settlement Agreement was based
on the accuracy of EAC’s representation that approximately $1.1 million remained outstanding
on Borrower Credit Plans as of the date collections ceased, and other material financial
representations regarding Defendants’ inability to satisfy a larger settlement or judgment.
Tarantolo Decl. ¶¶ 19-21; Settlement Agreement ¶ II.A.8.
EAC will request that all credit reporting bureaus delete all Credit Plan trade lines
reported by EAC from the credit reports of all Class Members. Settlement Agreement ¶ II.D.1.
EAC will transfer to the Class all outstanding claims that EAC holds against the Dealers,
and will take other steps to cooperate in Class Counsel’s efforts to assist Borrowers whose
contracts have been assigned to Dealers (including identifying such Borrowers, Dealers, and the
collection status to the extent known). Id. ¶ II.E.1-6.
Plaintiffs and Class Members will release all claims against Defendants, and Defendants
will release all claims against Class Members. Id. ¶ V.
F. Proposed Allocation Plan for Monetary Awards to Class Members
All Class Members who paid EAC more than $250 will be eligible for compensation (the
“Compensation Class”). A total of 60,232 Class Members (75.6% of the Class) paid more than
$250 to EAC; their payments comprise over 98.7% of all money collected by EAC from Class
Members. Tarantolo Decl. ¶ 25. Settlement Funds will be distributed to these Class Members on
a proportional basis, based on the amount of money that each Class Member paid EAC so that, in
effect, each Class Member will receive the same percentage refund of the funds they paid EAC.
Additionally, the twenty borrowers represented by Class Counsel whose stories were
included in the First and Second Amended Complaints (the “Rule 26 Borrowers,” as these
Borrowers were also listed in Plaintiffs’ Initial Disclosures) are in the Compensation Class.
These Class Members will receive a full refund of all amounts paid to EAC, up to $1,000 or, if
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they paid less than $250 to EAC, an award of $250. Id. ¶ 38.
G. Proposed Notice to Class Members, and Settlement Administration
After a competitive bidding process, Class Counsel retained a Class Administrator,
Atticus Administration, LLC, which will distribute notice of the settlement to the Class, process
any Class Member objections and requests to opt-out, process claims, distribute settlement funds,
respond to Class Member inquiries about the settlement, and manage other aspects of
administering the settlement. The Class Administrator has agreed to charge a fee of no more than
$81,500. Tarantolo Decl.¶ 48.
The Notices (one for Compensation Class Members, one for Class Members not eligible
for compensation), attached as Tarantolo Declaration Exhibits 3 and 4, will be provided to all
Class Members by email. For Compensation Class Members, the email Notice will contain a link
to an electronic Claim Form. No later than forty-five days before the deadline to submit Claims
Forms, each Compensation Class member who has not opened the initial email will be sent a
second reminder email containing the Notice. A text message reminder will thereafter be sent to
some or all Compensation Class Members who did not open either reminder email. Finally, no
later than twenty-one days before the deadline, a post card notice providing a summary of the
settlement terms and directing Class Members to the settlement website will be sent by postal
mail to each Class Member for whom the email notice was returned as undeliverable, as well as
to any Compensation Class Member who did not open either of the notice emails. Id.¶ 49.
H. Counsel’s Zealous Work on Behalf of the Class
The New York Legal Assistance Group is a nonprofit legal services provider dedicated to
helping New Yorkers experiencing poverty or in crisis combat financial and other injustice, and
Quinn Emanuel is an experienced law firm working on this action pro bono. Tarantolo Decl.
¶ 61; Oblak Decl. ¶¶ 3, 5.
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Class Counsel has zealously investigated and prosecuted Defendants’ scheme, expending
thousands of hours, starting months before the Complaint was filed, through the submission of
this motion. Tarantolo Decl. ¶ 63. Class Counsel collected documents from and thoroughly
interviewed Named Plaintiffs Kory Turner and Vanessa Williams and investigated their claims,
including by consulting with national experts in student loan and consumer law. Id. ¶¶ 64-66.
Class Counsel has spoken or emailed with over 350 additional Class Members, and interviewed
many Borrowers about their experience with EAC, reviewing their documents and providing
legal advice regarding this Action and the Borrowers’ student loans. Id. ¶¶ 67-68.
Class Counsel has aggressively litigated this action, including by filing three successively
exceedingly detailed Complaints totaling hundreds of pages, ECF Nos. 1, 30, 119, seeking to file
three motions to compel, ECF Nos. 54, 45, 158, filing a preliminary injunction motion, ECF No.
110, and opposing three motions to dismiss, ECF Nos. 47, 132, 154. Class Counsel also pursued
substantive discovery from EAC, securing re-production of EAC’s productions to investigating
federal and state law enforcement agencies early in the litigation, ECF No. 59, and reviewing
over 36,000 documents while negotiating additional substantive discovery from EAC. Tarantolo
Decl. ¶ 70; see also ECF No. 158. Class Counsel negotiated this Settlement Agreement through
dozens of phone conversations and emails, over the course of months, and also consulted with an
accounting expert to review documentation of EAC’s financial resources. Tarantolo Decl.
¶ 15, 69.
Notably, Plaintiffs filed their well-pleaded Complaint publicly before law enforcement
agencies filed and settled similar actions. Plaintiffs’ and Class Counsel’s zealous efforts to
litigate this action have thus served the public interest as well as Class Members. Id. ¶ 71.
III. SETTLEMENT APPROVAL PROCESS AND STANDARD OF REVIEW
There is a “strong judicial policy in favor of settlements, particularly in the class action
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context.” Wal-Mart Stores, Inc. v. Visa U.S.A. Inc., 396 F.3d 96, 116 (2d Cir. 2005) (internal
quotation marks and citation omitted). Speedy settlement “allows class members to recover
without unnecessary delay and allows the judicial system to focus resources elsewhere.” Hadel v.
Gaucho, LLC, 2016 WL 1060324, at *2 (S.D.N.Y. Mar. 14, 2016).
Federal Rule of Civil Procedure 23(e) requires a court to approve class action settlements
before they can become binding. A court may approve such a settlement if it finds, in its
discretion, that it is “fair, adequate, and reasonable, and not a product of collusion.” Wal-Mart,
396 F.3d at 116; see also Fed. R. Civ. P. 23(e)(2). “The District Court determines a settlement’s
fairness by examining the negotiating process leading up to the settlement as well as the
settlement’s substantive terms.” D’Amato v. Deutsche Bank, 236 F.3d 78, 85 (2d Cir. 2011). The
Court should “give proper deference to the private consensual decision of the parties . . . [and]
should keep in mind the unique ability of class and defense counsel to assess the potential risks
and rewards of litigation.” Clark v. Ecolab, Inc., 2009 WL 6615729, at *3 (S.D.N.Y. Nov. 27,
2009).
In evaluating the substantive fairness, adequacy, and reasonableness of a class action
settlement, courts in the Second Circuit have historically considered nine “Grinnell” factors:
(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 recovery . . . ; (9) the range of reasonableness of the settlement fund to a possible recovery in light of all the attendant risks of litigation . . . .
See City of Detroit v. Grinnell Corp., 495 F.2d 448, 463 (2d Cir. 1974) (internal citations
omitted) (“Grinnell”), abrogated on other grounds by Goldberger v. Integrated Res., Inc., 209
F.3d 43 (2d Cir. 2000); see also In re LIBOR-Based Fin. Instruments Antitrust Litig., 327 F.R.D.
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483, 493 (S.D.N.Y. 2018) (discussing use of the Grinnell factors in the Second Circuit).
On December 1, 2018, amendments to Federal Rule of Civil Procedure 23 took effect
that, among other changes, added specific factors to Rule 23(e)(2) that a Court must review in
determining whether a proposed class-wide settlement is fair, reasonable, and adequate. Under
the newly-amended Rule 23(e)(2), a Court must consider whether: (A) the class representatives
and class counsel have adequately represented the class; (B) the proposal was negotiated at arm’s
length; (C) the relief provided for the class is adequate, and (D) the proposal treats class
members equitably relative to each other. Fed. R. Civ. P. 23(e)(2). Following the amendment,
“[t]he factors set forth in Rule 23(e)(2) have been applied in tandem with the Second Circuit’s
Grinnell factors and focus the court and the lawyers on the core concerns of procedure and
substance that should guide the decision to whether to approve the proposal.” In re Namenda
Direct Purchaser Antitrust Litig., 462 F. Supp. 3d 307, 311 (S.D.N.Y. 2020) (citation omitted);
see also In re GSE Bonds Antitrust Litig., 414 F. Supp. 3d 686, 692 (S.D.N.Y. 2019) (citing the
Advisory Committee Notes to the 2018 Amendment).
Class action settlement approval involves two steps. First, the Court must evaluate the
proposed settlement on a preliminary basis, often termed “preliminary approval.” Upon “the
parties’ showing that the court will likely be able to (i) approve [the Settlement] under Rule
23(e)(2) and (ii) certify the class for purposes of judgment on the proposal,” the Court must
direct notice to the Class. Fed. R. Civ. P. 23(e)(1)(B); see also Yuzary v. HSBC Bank USA, N.A.,
2013 WL 1832181, at *2-4 (S.D.N.Y. Apr. 30, 2013); In re Nasdaq Market-Makers Antitrust
Litig., 176 F.R.D. 99, 102 (S.D.N.Y. 1997). The standards for preliminary approval are less
exacting than at the final stage, and preliminary approval is often granted without a hearing. See
Hadel, 2016 WL 1060324, at *1-2.
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Second, upon granting preliminary approval, the Court orders that notice of the proposed
settlement be given to the class members, holds an evidentiary hearing to determine the fairness
and adequacy of the settlement on a final basis, and upon finding that the settlement is fair and
adequate, grants the settlement final approval. See In re Initial Public Offering Secs. Litig., 243
F.R.D. 79, 87 (S.D.N.Y. 2007).
A. The Settlement Is Fair, Reasonable, and Adequate
1. Rule 23(e)(2)(A): Named Plaintiffs and Class Counsel Have Adequately Represented the Class
Rule 23(e)(2)(A) directs the Court to consider whether “the class representatives and
class counsel have adequately represented the class.” This is a “procedural” inquiry, and the “the
focus . . . is on the actual performance of counsel acting on behalf of the class.” Advisory
Committee Note, Rule 23(e)(2)(A-B). Here, the Named Plaintiffs and Class Counsel have more
than adequately represented the Class throughout the litigation, weighing in favor of settlement.
Class Counsel performed thousands of hours of work on this litigation, including:
interviewing, collecting documents from, and/or providing information to Named Plaintiffs and
over 350 additional Class Members; consulting with national experts in student loan and
consumer law and an accounting expert; filing three exceedingly detailed Complaints totaling
hundreds of pages; filing three applications for motions to compel, a preliminary injunction
motion, and oppositions to three motions to dismiss; reviewing more than 36,000 documents
produced by EAC; zealously seeking additional document production; working with Named
Plaintiffs to produce discovery to EAC; and negotiating this Settlement Agreement over the
course of months. Tarantolo Decl. ¶¶ 63-72.
The Named Plaintiffs have adequately represented the Class through full and open
cooperation with Class Counsel, including by attending meetings and interviews with counsel,
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providing multiple rounds of records for production, and reviewing and approving the substance
of the Settlement. Id. ¶¶ 42-44. Additionally, Ms. Williams attended the lengthy in-person
settlement conference held with Judge Netburn (while Mr. Turner made himself available by
telephone during this conference, due to his work obligations). Id. ¶ 46. Named Plaintiffs
contributed substantial time and effort meeting with Class Counsel and providing documents and
information to assist in both litigation and settlement negotiations. Id. ¶ 45. They undertook these
efforts despite having limited means and little familiarity with proceedings of this nature. Id.
¶ 47. Named Plaintiffs and Class Counsel have thereby adequately represented the Class.
2. Rule 23(e)(2)(B): The Settlement Proposal Was Negotiated at Arm’s Length
Rule 23(e)(2)(B) requires that “the proposal was negotiated at arm’s length.” Fed. R. Civ.
P. 23(e)(2)(B). The procedural fairness of a settlement is based on the negotiating process that
led to it. D’Amato, 236 F.3d at 85. To find a settlement process fair, the court must “ensure that
the settlement resulted from arm’s-length negotiations and that plaintiff[’s] counsel . . . possessed
the experience and ability . . . necessary to effective representation of the class’s interests.” Id.
(internal quotation marks omitted).
The settlement discussions in this matter, which began in late 2019, were highly
contested. Despite the Parties’ attendance at an in-person settlement conference before Judge
Netburn, they were unable to reach a settlement. Tarantolo Decl. ¶ 15. The Parties re-started
settlement negotiations for a second time in November 2020, engaging in rigorous, contested
discussions throughout the subsequent three months as to both the monetary and non-monetary
settlement terms. Id. ¶¶ 16-24. Notably, Plaintiffs continued to demand discovery throughout this
negotiation process, indicating their willingness to proceed with the litigation if the Parties were
unable to reach a settlement that Class Counsel viewed as fair and reasonable. Id. ¶ 70. Class
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Counsel reviewed many rounds of financial documentation and information provided by EAC in
order to probe the veracity of EAC’s representations about its financial condition. Id. ¶¶ 18-20.
The seriousness of the disagreements between the Parties is evidenced by the months of
settlement negotiations that the Parties undertook before ultimately agreeing to the Settlement.
Id. ¶¶ 14-23. Rule 23(e)(2)(B) is therefore satisfied.
3. Rule 23(e)(2)(C): The Relief Provided for the Class Is Adequate
(a) Rule 23(e)(2)(C)(i): Costs, Risks, and Delay of Trial and Appeal
Rule 23(e)(2)(C)(i), which asks the Court to consider the “costs, risks, and delay of trial
and appeal” overlaps with a number of Grinnell factors, which help guide the Court’s application
of the Rule. See In re GSE Bonds, 414 F. Supp. 3d at 693. Specifically, the Court’s inquiry here
should be guided by the following Grinnell factors: the complexity, expense, and likely duration
of the litigation (Factor 1); the risks of establishing liability (Factor 4); the risks of establishing
damages (Factor 5); the risks of maintaining the class action through the trial (Factor 6); the
ability of the defendants to withstand a greater judgment (Factor 7); the range of reasonableness
of the settlement fund in light of the best possible recovery (Factor 8); and the range of
reasonableness of the settlement fund as compared to a possible recovery in light of all the
attendant risks of litigation (Factor 9). Id. As explained below, proceeding to trial in this action
would involve tremendous time and resources, and significant litigation risk. Tarantolo Decl.
¶¶ 73-78. Moreover, Defendants’ severe lack of financial resources creates a risk that even
successful litigation to judgment would ultimately be fruitless for Plaintiffs, as there is a
significant chance that even as prevailing parties Plaintiffs could obtain little or no money for the
Class. Id. ¶ 77.
Complexity, expense and likely duration of the litigation (Factor 1): With regard to the
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first Grinnell factor, this case is complex, involving TILA, RICO, and related fraud claims as
well as dozens of Dealers and tens of thousands of Class Members.6 Continuing litigation would
be time-consuming and expensive for all Parties, involving numerous depositions; a likelihood
that EAC would be required to reconstruct substantial portions of its prior productions to agency
investigators due to unresolved doubts as to the reproductions’ sufficiency, as well as conduct
other further document searches and productions, see ECF No. 158; and new discovery into
Jeffrey Henn’s role in the conduct at issue. Tarantolo Decl. ¶ 75. Moreover, delay would have
substantial negative ramifications for the Class, as Defendants would continue to collect money
from Class Members on Credit Plans during the pendency of litigation—valued at up to $1.1
million—and, as described below, would almost certainly be less likely in the future to have
sufficient funds with which to satisfy a judgment. Id. ¶ 77. This factor weighs in favor of the
proposed settlement.
Risks of establishing liability and damages (Factors 4 and 5): Class Counsel believes that
the Class has a strong case and would prevail on liability and damages at trial. Id. ¶ 73. However,
“[l]itigation inherently involves risks,” and the main purpose of settlement “is to avoid a trial on
the merits because of the uncertainty of the outcome” and the costs of delay. See In re
PaineWebber Ltd. P’ships Litig., 171 F.R.D. 104, 126 (S.D.N.Y. 1997) (internal quotation marks
omitted). There would be risk in establishing Defendants’ class-wide liability, particularly as to
Plaintiffs’ fraud claims that are based on Dealers’ oral misrepresentations, which carry a high
burden of proof. Tarantolo Decl. ¶ 73; see Moore v. PaineWebber, Inc., 306 F.3d 1247, 1252-56
6 See, e.g., Charron v. Pinnacle Grp. N.Y. LLC, 874 F.Supp.2d 179, 195 (S.D.N.Y. 2012), aff’d sub nom.
Charron v. Wiener, 731 F.3d 241 (2d Cir. 2013) (granting final approval of settlement class action where “[t]he path from this stage of the litigation to a final judgment on the issue of Defendants’ liability for violation of the RICO statutes . . . would be long, complicated, and expensive . . . [n]otwithstanding the strength of the evidence Plaintiffs elicited during the pre-suit investigation and discovery”).
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(2d Cir. 2002). Courts have recognized that RICO claims are typically complex and can be
difficult to establish. See, e.g., In re Prudential Sec., Inc., 1995 WL 798907, at *13 (S.D.N.Y.
Nov. 20, 1995) (granting final approval of settlement class action in action that was “extremely
complex, involving RICO allegations which, in and of themselves, involve complex issues such
as, inter alia, whether a pattern exists, whether the underlying predicate acts have been proved,
and whether a RICO injury can be established”).
As to damages, Plaintiffs face litigation uncertainty as to the amount of actual and
statutory damages that would be permitted under TILA in light of governing case law and
Defendants’ limited net worth. Tarantolo Decl. ¶ 73; In re Currency Conversion Fee Antitrust
Litig., 265 F. Supp. 2d 385, 428 (S.D.N.Y. 2003) (burden for TILA damages). Although there is
a chance that Plaintiffs could recover a larger amount if they litigated this matter to its
conclusion—for example, a successful RICO claim can yield treble damages, 18 U.S.C.
§ 1962(c)—Plaintiffs would also risk recovering nothing at all. Tarantolo Decl. ¶ 73; see also
Weil v. Long Island Sav. Bank, 188 F. Supp. 2d 258, 264 (E.D.N.Y. 2002) (finding treble
damages in a RICO claim “speculative” “in light of the difficulty in proving a RICO claim”).
“Settlement is favored” where, as here, it “results in substantial and tangible present recovery,
without the attendant risk and delay of trial.” Sykes v. Mel Harris & Assocs. LLC (“Sykes III”),
2016 WL 3030156, at *12 (S.D.N.Y. May 24, 2016) (internal quotation marks omitted).
Risks of maintaining the class action through the trial (Factor 6): The sixth Grinnell
factor “weighs in favor of settlement” where “it is likely that defendants would oppose class
certification” if the case were to be litigated. Garland v. Cohen & Krassner, 2011 WL 6010211,
at *8 (E.D.N.Y. Nov. 29, 2011). While Plaintiffs believe that their arguments in favor of class
certification are strong, and that a Class would ultimately be certified, Defendants would
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vigorously oppose certification, likely on the basis that the Class Members were sold the
Services by various employees of dozens of different Dealers. Tarantolo Decl. ¶ 74. This factor
thus weighs in favor of settlement.
Ability of the defendants to withstand a greater judgment (Factor 7): Defendants’
inability to withstand greater judgment strongly weighs in favor of approval of settlement here.
The settlement negotiations in this matter largely focused on the financial condition of EAC and
its ability to withstand an eventual judgment. Tarantolo Decl. ¶¶ 18-19. EAC represented that it
had very limited assets, and that its income was projected to decline sharply in the coming
months. Id. To substantiate these claims, Class Counsel sought and obtained detailed financial
information to Class Counsel to review, including its audited financial statements and tax
returns. Id. Upon reviewing, Class Counsel is satisfied that EAC has very limited financial
resources and would be unlikely to withstand a judgment of the magnitude sought in this case—
indeed, that by the time this case were litigated to Judgment, EAC might not be able to satisfy
any portion of a judgment at all. Id. ¶¶ 19, 77. Moreover, EAC has represented that it is winding
down its business. Indeed, since EAC was prohibited by the law enforcement settlements from
issuing new Credit Plans, its income is severely curtailed, such that even the limited resources
available for the Class now may not remain after the time it would take to litigate this action to
judgment. Id. ¶ 77.
Henn, against whom Plaintiffs’ claims are at a substantially earlier stage of development
given that they were added only in late 2020, has likewise represented that he would be unable to
satisfy a judgment of the magnitude Plaintiffs seek. Id. ¶ 20. Plaintiffs’ agreement to the
Settlement Agreement is expressly conditioned on the truthfulness of these financial disclosures.
Settlement Agreement ¶ II.A.8.
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The reasonableness of Plaintiffs’ determination that Defendants may not be able to satisfy
a judgment larger than the value of the settlement is bolstered by the law enforcement agency
settlements. Both the Federal Trade Commission and the New York Attorney General settled
their claims with EAC in the Fall of 2019 — a time when EAC had significantly more assets
than it does now — and suspended over 90% of the financial penalties assessed due to EAC’s
inability to pay.7 The FTC obtained $1 million in financial penalties from EAC between the two
cases it filed against the Company, the same settlement that Plaintiffs have secured here. Each of
those settlements were conditioned on the veracity of EAC’s representations regarding its
finances, and none of the suspended judgments have been reinstated since that time, suggesting
that the law enforcement agencies have not become aware of significant additional assets held by
EAC. Tarantolo Decl. ¶ 60. No law enforcement agency secured a higher payment than Plaintiffs
have obtained through settlement; indeed, Virginia’s settlement, which was secured within days
of Plaintiffs’ settlement of this action, obtained only $50,000 in monetary relief. Id. ¶ 58.
Range of reasonableness of the Settlement Fund in light of the best possible recovery and
attendant risks of litigation (Factors 8 and 9): In analyzing the reasonableness of the Settlement
Fund, the Court must assess “the uncertainties of law and fact in any particular case and the
concomitant risks and costs necessarily inherent in taking any litigation to completion.’” Frank
v. Eastman Kodak Co., 228 F.R.D. 174, 186 (W.D.N.Y. 2005) (quoting Newman v. Stein, 464
F.2d 689, 693 (2d Cir. 1972)). In other words, “[t]he adequacy of the amount offered should be
judged in light of the strengths and weaknesses of the plaintiff[s’] case.” In re Austrian and
7 Federal Trade Commission et al. v. Manhattan Beach Venture, LLC, et al, No. 19 Civ. 7849 (C.D. Cal.),
ECF No. 4, at 11 (suspending all but $136,200 of $3.8 million judgment); Federal Trade Commission v. Student Advocates Team, LLC, et al., No. 19 Civ. 1728 (C.D. Cal.), ECF No. 5, at 11 (suspending all but $863,800 of $24 million judgment); New York v. Debt Resolve Inc. et al., No. 18 Civ. 9812 (AJN) (S.D.N.Y.), Dkt. 112, at 13 (suspending all but $225,000 of $1.66 million judgment).
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German Bank Holocaust Litig., 80 F. Supp. 2d 164, 178 (S.D.N.Y. 2000) (citation omitted). The
proposed settlement, which provides $1 million to the Class Settlement Fund, cessation of
outstanding collections valued at $1.1 million, and additional benefits, provides the Class
valuable injunctive and monetary relief. Tarantolo Decl. ¶¶ 12, 25-35.
While Plaintiffs bring a very strong TILA claim, the Settlement Fund’s $1 million in
damages very likely exceeds the amount of damages that the Class could obtain were it to prevail
on that claim. TILA caps statutory damages at the lesser of $1 million or 1% of the Defendants’
net worth, 16 U.S.C. § 1640(a)(2)(B), and it is difficult to obtain actual damages under TILA on
a class-wide basis. See In re Currency Conversion Fee Antitrust Litig., 265 F.Supp.2d at 428.
This weighs in favor of settlement. See, e.g., Dorrance v. ARS Nat. Servs., Inc., 2015 WL
2213514, at *6 (M.D. Pa. May 11, 2015) (classwide damages of “a vast majority of the statutory
damages available,” as determined by 1% of defendant’s net worth, “weigh[ed] in favor of
settlement”); Marcoux v. Szwed, 2017 WL 679150, at *2 (D. Me. Feb. 21, 2017) (same); Harper
v. Law Office of Harris & Zide LLP, 2017 WL 995215, at *4 (N.D. Cal. Mar. 15, 2017) (same).
Plaintiffs believe that if this case were litigated through trial, the Class would be entitled
to actual and treble damages as available under RICO, as well as actual damages under their
common law fraud and New York’s consumer protection statute claims, and recognize that the
Settlement Fund is not a high percentage of the Class’s hypothetical best possible recovery,
particularly when taking into account the possibility of treble damages on the RICO claims.
18 U.S.C. § 1962(d); see Tarantolo Decl. ¶ 73. The settlement nonetheless reflects a reasonable
recovery for the Class given the significant risks of litigation and Defendants’ limited net
worth, as set forth above. Id.; see also Charron v. Pinnacle Grp. N.Y. LLC, 874 F. Supp. 2d 179,
201 (S.D.N.Y. 2012) (recognizing benefit in settlement where alternative was that “liability
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claims under RICO and the NYCPA went to trial and the Class Members were then forced to
prove their individual damages claims”) aff’d sub nom. Charron v. Wiener, 731 F.3d 241
(2d Cir. 2013).
(b) Rule 23(e)(2)(C)(ii): Effectiveness of Proposed Method of Claims Processing
Rule 23(e)(2)(C)(ii) directs the Court to consider “the effectiveness of any proposed
method of distributing relief to the class, including the method of processing class-member
claims.” Fed. R. Civ. P. 23(e)(2)(C)(ii). The proposed method of processing claims will be
effective. Upon receiving the Notice, Class Members eligible for compensation will be able to
submit Claim Forms online via the Settlement website,8 and will be asked to verify their identity
by providing easily accessible information such as the phone number associated with their EAC
account or the last four digits of their social security number. Tarantolo Decl. ¶ 54. This
verification process will ensure that payments are made only to eligible Class Members, and will
provide a simple way for the class administrator to process payment of claims. Class Members
will be able to elect to receive payment via electronic means (including PayPal, Vemno, Zelle,
physical or electronic debit card, and bank transfer), which is both less expensive to administer
and more convenient for class members, or to be mailed a paper check. Id. ¶ 55.
(c) Rule 23(e)(2)(C)(iii): Attorneys’ Fees
As of the date the Parties signed the Settlement Agreement, Class Counsel had already
expended in excess of 2,468 hours, resulting in a preliminary lodestar of more than $1,628,000,
and expect to spend considerable additional hours bringing this matter to its conclusion.
Tarantolo Decl. ¶ 63; Oblak Decl. ¶ 6. Yet, Class Counsel seeks to recover only a limited amount
8 Class Counsel can provide a screenshot of the Claim Form website to the Court upon request. Class Members who are unable to submit Claim Forms online will be able to submit a paper Claim Form by contacting the Settlement Administrator.
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of attorneys’ fees and costs, such that at least 75% ($750,000) of the Settlement Fund will be
paid directly to Class Members. Up to the remaining 25% ($250,000) of the Settlement Fund will
cover service awards, administration expenses, and attorneys’ fees and costs. Specifically,
administration expense are capped at $81,500; Named Plaintiffs will seek service awards of
$6,000, and Class Counsel accordingly estimates that it will seek an attorneys’ fees award in
connection with final approval of $162,500.9 Tarantolo Decl. ¶ 64. Quinn Emanuel has agreed to
litigate this case pro bono and will recover only its out-of-pocket expenses; all attorneys’ fees in
the settlement will go to NYLAG, a non-profit legal services organization serving New Yorkers
experiencing poverty. Tarantolo Decl. ¶ 61; Oblak Decl. ¶ 5. Plaintiffs presently seek
preliminary approval of this fee amount and will move for an award of the fees under Rules
23(h) and 54(d)(2) in connection with an eventual request for final approval of the Settlement.
The fee amount is eminently reasonable. When assessing proposed attorneys’ fees, courts
consider the following six factors: (1) the time and labor expended by counsel; (2) the magnitude
and complexities of the litigation; (3) the risk of the litigation; (4) the quality of the
representation; (5) the requested fee in relation to the settlement; and (6) public policy
considerations. Goldberger v. Integrated Res., Inc., 209 F.3d 43, 50 (2d Cir. 2000); Meredith
Corp. v. SESAC, LLC, 87 F. Supp. 3d 650 (S.D.N.Y. 2015).
Here, counsel expended a tremendous amount of time and labor zealously pursuing this
action; as stated above, Class Counsel’s hours totaled more than 2,468 hours. This litigation has
been substantial and complex, affecting 79,656 Class Members across all states who purchased
Services from numerous Dealers, involving multiple, technical claims under statutes such as
9 In the event that Administration Expenses fall below the $81,500 maximum, Class Counsel reserves the right to seek additional fees and costs equal to the reduction in Administration Expenses. But in no event will Class Counsel seek an award of fees and costs such that less than 75% of the total Settlement Fund is distributed to Class Members. Tarantolo Decl. ¶ 64.
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RICO and TILA. Moreover, when Class Counsel developed these claims, no information from
regulatory investigations was public, which entailed substantial efforts and some risk. Tarantolo
Decl. ¶ 71. Both NYLAG and Quinn Emanuel have significant experience with complex and
class litigation and are highly qualified. Id. ¶ 62; Oblak Decl. ¶¶ 3-4.
The size of the fee award is modest in relation to the relief for the Class, approximately
16% of the Settlement Fund, which is well within the boundaries of fees awarded in this
district. 10 This fee is particularly appropriate under the “sliding scale” approach, in which
plaintiffs’ counsel are awarded a smaller proportion of the Settlement Fund as the size of the
fund increases. In re Colgate-Palmolive Co. ERISA Litig., 36 F. Supp. 3d at 348. Moreover, the
stipulated fee amount is far lower than the result of Class Counsel’s preliminary lodestar
calculation. Goldberger, 209 F.3d at 50 (holding that lodestar method may be used to calculate
reasonable fees for a class action settlement); Millea v. Metro-North Railroad Co., 658 F.3d 154,
166 (2d Cir. 2011) (lodestar method calculates attorneys’ fees by multiplying number of hours
reasonably expended by reasonable hourly rates). At the time the Settlement Agreement was
signed, Class Counsel had already expended well over 2,468 hours litigating the case. Tarantolo
Decl. ¶ 63; Oblak Decl. ¶ 6. Applying reasonable prevailing rates, Class Counsel had already
performed services valued at more than ten (10) times the requested fee amount, and since that
time, Class Counsel have expended many additional uncompensated hours (with many more to
follow in the future). Tarantolo Decl. ¶ 63; Oblak Decl. ¶ 6.
In addition, public policy considerations strongly support the requested fees here.
10 See Shapiro v. JPMorgan Chase & Co., 2014 WL 1224666, at *19 (S.D.N.Y. Mar. 24, 2014) (“[A]
reasonable percentage-of-the-fund range [is] between 10% and 30%.”); McBean v. City of New York, 233 F.R.D. 377, 393 (S.D.N.Y. 2006) (awarding attorneys’ fees amounting to 18% of the settlement fund); In re Colgate-Palmolive Co. ERISA Litig., 36 F. Supp. 3d 344, 349-350 (S.D.N.Y. 2014) (median fees percentage between 21.9% to 30% of the settlement fund); see also Grice v. Pepsi Beverages Co., 363 F. Supp. 3d 401 (S.D.N.Y. 2019); Goldberger, 209 F.3d at 47, 50 (describing “percentage of recovery” method as alternative to lodestar method).
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NYLAG is a non-profit legal services organization that provides representation to New Yorkers
like Ms. Williams and Mr. Turner who would not otherwise have the means to obtain private
counsel to assist them. Id. ¶ 61. A fee award to NYLAG would support ongoing work on behalf
of New Yorkers in need. Id. Moreover, multiple statutory provisions under which Plaintiffs
brought this action provide for fee-shifting, precisely to encourage qualified counsel like
NYLAG and Quinn Emanuel to commit resources to prosecuting private claims to enforce the
law. See 18 U.S.C. § 1964 (c) (RICO); 15 U.S.C. § 1640(a) (TILA); NY GBL § 349(h).
Here, where experienced Class Counsel spent over two years vigorously investigating
and prosecuting a Scheme designed to defraud vulnerable student loan Borrowers into
purchasing worthless “services” at usurious rates — and where the fee award is approximately
16% of the total Settlement Fund, and less than 10% of Class Counsel’s preliminary lodestar —
the Goldberger factors weigh in the proposed attorneys’ fees favor.
(d) Rule 23(e)(2)(C)(iv): Agreements Made in Connection with Proposal
Rule 23(e)(2)(C)(iv) directs the Court to consider “any agreement made in connection
with the [settlement] proposal.” Other than the Settlement Agreement itself, there are no
agreements that have been made in connection with the Proposed Settlement. Tarantolo Decl.
¶ 24.
4. Rule 23(e)(2)(D): The Proposal Treats Class Members Equitably Relative to Each Other
The proposed Allocation Plan, attached as Tarantolo Declaration Exhibit 2, is fair and
treats Class Members equitably relative to each other. “The method of allocation need not be
perfect [to warrant preliminary approval]; it must only be rationally related to the relative
strengths and weaknesses of the . . . claims asserted.” Sand v. Greenberg, 2011 WL 1338196, at
*5 (S.D.N.Y. Mar. 22, 2011) (internal quotation marks and citation omitted).
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The proposed Allocation Plan excludes from compensation Class Members who paid less
than $250 to EAC, who comprise approximately one-quarter of the Class (11% of Class
Members paid EAC less than $250, and 13% of Class Members never paid any money to EAC at
all). Tarantolo Decl. ¶ 25. These individuals paid in the aggregate less than 1.5% of the total
funds collected by EAC, and they would likely receive only a very small distribution from the
settlement.11 Id. ¶ 36.
The remaining 60,232 Class Members (75.6% of the Class) are eligible for Compensation
and will be treated equitably, in relation to the size of their payment to EAC. Id. ¶ 36. Each
Compensation Class Member who submits a Claim Form will receive a monetary payment that is
proportional to the amount of money he or she paid to EAC, effectively giving each
Compensation Class Member the same percentage refund of their payments to EAC. Id. ¶ 37.
Class Counsel chose this plan because it is straightforwardly fair, in that it puts money back into
the hands of injured Class Members in an amount related to their harm, and it minimizes
administrative costs. Id. ¶ 39.
Additionally, the Allocation Plan provides for awards of $250 to $1,000 to the Rule 26
Borrowers, in recognition of their work contributing to the Action, as well as a Service Award of
$3,000 each to Ms. Williams and Mr. Turner, the Named Plaintiffs. Id. ¶¶ 38, 41; Settlement
Agreement ¶ II.A.5. The Named Plaintiffs and Rule 26 Borrowers “play[ed] a crucial role in
bringing justice to those who would otherwise be hidden from judicial scrutiny.” Guippone v. BH
S&B Holdings LLC, 2016 WL 5811888, at *8 (S.D.N.Y. Sept. 23, 2016). The service awards,
which are “consistent with the range of awards made in” similar cases in this Circuit, is
11 Class Counsel calculated that, at a 10% claims rate, these Class Members would be entitled to a payment
of no more than approximately $25; at a 30% claims rate, the maximum payment would be only approximately $8. Tarantolo Decl. ¶ 39.
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reasonable in light of Mr. Turner and Ms. Williams’s time and effort.12 This amount is also
comparable to the amount Ms. Williams and Mr. Turner would have received in actual or
compensatory damages and statutory damages had they brought their own suits. Tarantolo
Decl. ¶ 42.
Under the proposed Settlement, if money remains in the Settlement Fund after a first
distribution and further distributions to Class Members is not economically reasonable, a cy pres
distribution may be made to a not-for-profit organization that benefits individuals adversely
affected by federal student loan debt, “for the aggregate, indirect, prospective benefit of the
class.” Masters v. Wilhelmina Model Agency, Inc., 473 F.3d 423, 436 (2d Cir. 2007) (quotations
omitted); see Settlement Agreement ¶ II.A.7.
5. Additional Grinnell Factors
The second Grinnell factor asks the Court to consider the reactions of the class to the
settlement. Both Named Plaintiffs approve of the settlement. Tarantolo Decl. ¶ 34. Thus, at this
stage, the second Grinnell factor weighs in favor of approving the settlement. The Court should
re-examine this factor after notice has been issued to the rest of the Class Members, in
connection with final approval.
The third Grinnell factor, which focuses on the stage of the proceedings and the amount
of discovery completed, also favors preliminary approval of the Settlement. In general,
settlement is appropriate as long as “the plaintiffs have obtained a sufficient understanding of the
case to gauge the strengths and weaknesses of their claims and the adequacy of the settlement.”
In re AOL Time Warner, Inc., 2006 WL 903236, at *10 (S.D.N.Y. Apr. 6, 2006) (approving
12 O’Connor v. AR Res., Inc., 2012 WL 12743, at *9 (D. Conn. Jan. 4, 2012) ($2,000 service award); see
also Garland, 2011 WL 6010211, at *14 ($3,000 service award); Gross v. Wash. Mut. Bank, F.A., 2006 WL 318814, at *6 (E.D.N.Y. Feb. 9, 2006) ($5,000 service award).
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settlement prior to depositions); see, e.g., Johnson v. Brennan, 2011 WL 4357376, at *9-10
(S.D.NY. Sept. 16, 2011) (granting final approval of a class settlement where the parties engaged
in informal discovery, class counsel conducted interviews and reviewed information provided by
the defendants, the parties met with a mediator and exchanged mediation statements, and counsel
performed “detailed damages calculations” based on defendant’s data, but no depositions were
taken). Here, in the two and half years that this case has been pending, the Parties have
exchanged significant discovery, and Class Counsel has reviewed over 36,000 documents from
EAC, as well as critical informal discovery regarding EAC’s financial condition and ability to
withstand a sizeable judgment. Supra at 10. This factor also weighs in favor of settlement.
B. Rule 23(e)(1): Proposed Notice to the Class
1. Notice to the Class
The Federal Rules of Civil Procedure require notice to be provided when a Rule 23(b)(3)
class is certified and when a class action settles. See Fed. R. Civ. P. 23(c)(2)(B), 23(e)(1)(B).
“Where, as here, the parties seek simultaneously to certify a settlement class and to settle a class
action, the elements of Rule 23(c) notice (for class certification) are combined with the elements
of Rule 23(e) notice (for settlement or dismissal).” In re Glob. Crossing Secs. & ERISA Litig.,
225 F.R.D. 436, 448 (S.D.N.Y. 2004). Notice to class members must be made “in a reasonable
manner” that is “the best notice that is practicable under the circumstances.” Fed. R. Civ. P.
23(c)(2)(B), 23(e)(1)(B).
The Parties have retained an experienced claims administrator, Atticus Administration,
LLC, which will distribute notice of the settlement to the Class, process any Class Member
objections and requests to opt-out, process claims, distribute settlement funds, respond to Class
Member inquiries about the settlement, and manage other aspects of administering the
settlement. Tarantolo Decl. ¶ 48. The Notice Plan involves up to four rounds of notice: First, an
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email to all Class Members; second, a reminder email to all Compensation Class Members who
have not submitted a Claim Form; third, a text message reminder to some or all Compensation
Class Members; and, finally, a postcard notice13 to all Class Members for whom the notice email
was undeliverable, as well to all Compensation Class Members who did not open the notice
emails. Id. ¶ 49.
Plaintiffs’ proposal to distribute notice primarily by email should be approved, as “[t]he
standard for the adequacy of a settlement notice in a class action under either the Due Process
Clause or the Federal Rules is measured by reasonableness.” Wal-Mart, 396 F.3d at 113; see also
Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 314-15 (1950) (holding class notice
must be “reasonably calculated, under all the circumstances, to apprise interested parties of the
pendency of the action and afford them an opportunity to present their objections”). Class
certification notice may therefore be made by “United States mail, electronic means, or other
appropriate means.” Fed. R. Civ. P. 23(c)(2)(B) (emphasis added); see also Fed. R. Civ. P.
23(e)(1)(B) (Court “direct[s] notice in a reasonable manner to all class members[.]”).
Distribution of notice of proposed class action settlements by email satisfies Rule 23 and
the Due Process Clause’s notice requirements, particularly where, as here, the notice plan relies
on physical mail as a backup where electronic mail is undeliverable.14 In Ortega v. Uber Tech.,
Inc., the Court approved a notice plan where the “settlement class would receive notice of the
settlement solely by email; if an email transmitting the settlement notice is returned as
13 The post card notice will contain a summary of the Settlement terms, and will direct Class Members to the settlement website for more information.
14 The notice plan also proposes sending Class Members reminders via text message. Tarantolo Decl. ¶ 49. Courts have approved plans where notice is disseminated by text message, where the defendant has class members’ phone numbers. See In re AT&T Mobility Wireless Data Servs. Sales Tax Litig., 789 F. Supp. 2d 935, 968 (N.D. Ill. 2011) (approving notice plan that included sending text messages to Class Members); Vasto v. Credico (USA) LLC, 2016 WL 2658172, at *16 (S.D.N.Y. May 5, 2016) (granting plaintiffs’ “request for permission to distribute notice [of conditional collective action certification under FLSA] via email and text message”).
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undeliverable, the settlement administrator would send a copy of the notice to that class member
by physical mail,” because the class members communicated with the defendant corporation
over email, demonstrating that the class members were “familiar and comfortable with email and
the Internet.” 2018 WL 4190799, at *10-11 (E.D.N.Y. May 4, 2018) (internal citations omitted);
see also In re Online DVD-Rental Antitrust Litig., 779 F.3d 934, 941 (9th Cir. 2015) (approving
settlement notice by email, then notice by regular mail for email notices that “bounced back”).
Every Class Member enrolled in the EAC Credit Plan electronically through email and received
EAC’s statements and monthly bills by email, demonstrating that all Class Members are
“familiar and comfortable with email and the Internet.” Tarantolo Decl. ¶ 50. Moreover, the
notice plan proposes to send physical notice not only to Class Members whose emails return as
“undeliverable,” but also to all Class Members who do not open the email notice. Id. ¶ 49. Courts
are especially inclined to approve email notice plans in cases involving companies that already
possess class members’ email addresses, recognizing the financial efficiencies of email notice as
compared to notice sent by U.S. mail.15 Effecting notice primarily through email is far more cost-
effective in this case than mailed notice; because notice costs will be paid out of the Settlement
Fund, sending notice via electronic means benefits Class Members by preserving more funds for
allocation to the Class. Id. ¶ 50. Further, EAC has provided email addresses for over 99.95% of
Class Members, and these email addresses are far more likely to be accurate than mailing
addresses in EAC’s records, since EAC did not regularly communicate with Class Members via
15 See In re Domestic Airline Travel Antitrust Litig., 322 F. Supp. 3d 64, 71 (D.D.C. 2018) (determining
that settlement notice by email and publication notice was adequate under Rule 23 because direct mail would be disproportionately expensive, and defendant already had customer emails in possession); see also Noll v. eBay, Inc., 309 F.R.D. 593, 601 (N.D. Cal. 2015) (approving a plan to disseminate notice to class members using email addresses possessed by eBay, and by direct mail notice if the emails were undeliverable); Hall v. AT&T Mobility LLC, 2010 WL 4053547, at *4-6 (D.N.J. Oct. 13, 2010) (approving plan to disseminate notice in class members’ electronic monthly billing statements, which were sent via email).
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postal mail. Id.
The content of the proposed Individual Notices is also appropriate. They are written in
language that is as plain and simple as possible. Id. ¶ 51, Exs. 3 (Compensation Notice), 4
(Injunctive Notice). They also contain all of the requirements listed in Rule 23(c)(2)(B),
including a “general description” that “fairly apprise[s] the prospective members of the class of
the class action’s pendency, the relevant terms of the proposed settlement, their options in
connection with th[e] case.” Weinberger v. Kendrick, 698 F.2d 61, 70-71 (2d Cir. 1982) (internal
quotation marks omitted). Further, the notices provide Class Members with information not only
about this settlement, but also about how to contact free government assistance for their federal
student loans — critical information, as every Class Member paid for scam student loan debt
relief services that are available from the federal government for free. Tarantolo Decl. ¶ 51. And
the Notice will direct Class Members to the settlement website, which will have additional
information.
2. Telephonic Fairness Hearing
Class Counsel proposes that the Fairness Hearing in this matter be held telephonically
due to the ongoing COVID-19 public health emergency. Many courts, including in this district,
have ordered telephonic fairness hearings due to the pandemic.16 If the Court orders a telephonic
fairness hearing, Class Counsel will cooperate with the Court to ensure that all Class Members
are properly notified of the procedures for joining the telephonic hearing. Tarantolo Decl. ¶ 56.
C. Provisional Class Certification Should Be Granted for Settlement Purposes
Plaintiffs seek provisional approval of a settlement class pursuant to Fed. R. Civ. P. 16 See, e.g., In re Restasis (Cyclosporine Ophthalmic Emulsion) Antitrust Litig., 2020 WL 6193857, at *1 n.2 (E.D.N.Y. Oct. 7, 2020); In re General Motors LLC Ignition Switch Litig., 2020 WL 7481238 (S.D.N.Y. Dec. 18, 2020); In re Signet Jewelers Ltd. Sec. Litig., 2018 U.S. Dist. LEXIS 199808 (S.D.N.Y. Nov. 26, 2018); Hernandez v. Between the Bread 55th Inc., No. 17 Civ. 9541 (LJL) (S.D.N.Y.), ECF No. 170 (Sept. 10, 2020); Beach v. JPMorgan Chase Bank, 17 Civ. 563 (JMF) (S.D.N.Y), ECF No. 229 (Sept. 18, 2020).
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23(b)(2) and (b)(3) consisting of all individuals who obtained a Credit Plan from EAC to finance
student loan assistance services. Defendants have agreed to the certification of this Class for the
purposes of settlement. Settlement Agreement ¶ I.A.
Provisional class certification for the settlement of a putative class action has the key
practical advantages of “avoiding the costs of litigating class status while facilitating a global
settlement.” Francisco Corte v. Fig & Olive Founders LLC, 2015 WL 12591677, at *2
(S.D.N.Y. June 24, 2015). Under Federal Rule of Civil Procedure 23(a), “a class may be certified
only if four prerequisites have been met: numerosity, commonality, typicality, and adequacy of
representation.” Sykes v. Mel S. Harris & Assocs. LLC (“Sykes II”), 780 F.3d 70, 80 (2d Cir.
2015). In addition to satisfying the prerequisites of Rule 23(a), at least one of the three
subdivisions of Rule 23(b) must be satisfied in order to qualify for class certification. Fed. R.
Civ. P. 23(b). Here, Plaintiff seeks class certification under both Rule 23(b)(2) for injunctive
relief, and Rule 23(b)(3) for damages. For the following reasons, class certification is
appropriate here.
1. The Proposed Class Meets the Requirements of Rule 23(a)
(a) The Proposed Class Is Sufficiently Numerous
Federal Rule of Civil Procedure 23(a)(1) requires that a class be “so numerous that
joinder of all members is impracticable.” Fed. R. Civ. P. 23(a)(1). Numerosity is generally
presumed for classes larger than forty members. Consol. Rail Corp. v. Town of Hyde Park, 47
F.3d 473, 483 (2d Cir. 1995). Plaintiffs’ proposed Class easily meets the numerosity requirement,
because the proposed Class contains 79, 656 individuals. Tarantolo Decl.¶ 3.
(b) There Are Common Questions of Law and Fact
Rule 23(a)(2) requires there to be “questions of law or fact common to the class.” Fed. R.
Civ. P. 23(a)(2). Rule 23(a)’s commonality requirement is met if the class members’ claims
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depend on a “common contention . . . of such a nature that it is capable of classwide resolution—
which means that determination of its truth or falsity will resolve an issue that is central to the
validity of each one of the claims in one stroke.” Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338,
350 (2011).
The claims of the putative Class stem from Defendants’ unitary course of conduct in
operating a scheme to fraudulently induce Borrowers, by common oral misrepresentations and a
standardized set of contracts with material omissions, into purchasing valueless yet costly
Services financed by EAC at usurious rates. See supra at 3. Questions of law and fact common to
the Class include, among others, whether: EAC is a creditor under TILA; the Credit Plans
constitute spurious open-end credit; Defendants’ conduct is consumer-oriented; the Dealers’
sales practices constitute deceptive acts or practices; Defendants form an association-in-fact
enterprise under RICO; Defendants committed a pattern of racketeering activity; the Dealers
falsely represented that Borrowers would obtain loan “forgiveness”; the Dealers falsely
represented that their Services would benefit Borrowers; the Dealers failed to disclose that the
financing was in the form of a new loan from EAC; EAC drafted standard form Credit Plans; the
Credit Plans failed to disclose the amount financed, finance charge, total of payments, due date
and schedule of payments, billing notice rights, and Grace Period; and Defendants used the
interstate mails and wires.
There are plainly common questions of law and fact under TILA, as the Credit Plans—
which omitted disclosures required under TILA, and other material information—were
materially identical for all members of the proposed Class, except for the Borrower’s information,
the name of the Dealer, and the description and price of the specific Services purchased.
Tarantolo Decl. ¶ 11. The common material omissions in the standard Credit Plan, along with the
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Dealers’ common oral misrepresentations, underlie Plaintiffs’ RICO and state law claims as
well.17 Moreover, each member of the Class was harmed in a similar manner by Defendants’
fraudulent actions, in that Defendants’ unitary scheme of inducing Borrowers into purchasing
worthless services through common misrepresentations and common material omissions
defrauded Class Members of the cost of the Services and interest, lowered their credit scores, and
put them at risk of default on their federal student loans, among other similar financial,
emotional, and psychological harms. Supra at 3. Commonality is often found where each class
member’s injuries “derive from a unitary course of conduct by a single system.” Marisol A. v.
Giuliani, 126 F.3d 372, 377 (2d Cir. 1997). Here, the Class Members all suffer similar injuries as
a result of Defendants’ unitary Scheme; therefore, this Court may find commonality for the
purposes of approving the Parties’ Settlement Agreement.
(c) Named Plaintiffs’ Claims Are Typical of Those of the Class Members
Rule 23(a)(3) requires that the claims of the class representative be typical of the claims
of the class. The typicality requirement is met where, as here, “the disputed issue[s] of law or
fact occupy essentially the same degree of centrality to the named plaintiff’s claim as to that of
other members of the proposed class.” Mazzei v. Money Store, 829 F.3d 260, 272 (2d Cir. 2016)
(quoting Caridad v. Metro–N. Commuter R.R., 191 F.3d 283, 293 (2d Cir. 1999)). “[M]inor
variations in the fact patterns underlying individual claims” do not prevent a finding of typicality.
Robidoux v. Celani, 987 F.2d 931, 937 (2d Cir. 1993).
Ms. Williams’s and Mr. Turner’s claims are typical of the claims asserted by the Class, in
that they assert that Defendants’ scheme violated their individual rights under TILA, RICO, and
17 The Court has recognized that Plaintiffs’ fraud and RICO claims “clearly arise of the same nucleus of
operative fact.” ECF 164, Order of Jan. 14, 2021, at n.11.
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state law. The other Class Members assert precisely the same claims based on their materially
identical Credit Plans and Defendants’ unitary course of conduct towards all Class Members.
SAC ¶¶ 411-434, 458-478, 511-522. The Credit Plans they signed were materially identical to
those signed by members of the Class. Tarantolo Decl. ¶ 11. In addition, the financial, emotional,
and psychological harm they experienced is typical of that experienced by the Class Members.
SAC ¶¶ 251-264.
(d) The Named Plaintiffs Are Adequate Representatives
The final requirement of Rule 23(a) is that the representative parties must fairly and
adequately represent the interests of the class. Fed. R. Civ. P. 23(a)(4). “[A]dequacy is satisfied
unless ‘plaintiff’s interests are antagonistic to the interest of other members of the class.’” Sykes
II, 780 F.3d at 90 (quoting Baffa v. Donaldson, Lufkin & Jenrette Sec. Corp., 222 F.3d 52, 60 (2d
Cir. 2000)). Neither Mr. Turner nor Ms. Williams have interests antagonistic to the interest of
other Class Members. To the contrary, they have been subject to the same unlawful conduct as
the other Class Members. Supra at 2-3. Because “the same strategies that will vindicate [the
Named Plaintiffs’] claims will vindicate those of the class,” they are adequate class
representatives. See Damassia v. Duane Reade, Inc., 250 F.R.D. 152, 158 (S.D.N.Y. 2008).
D. The Proposed Classes Meet the Requirements of Rule 23(b)
In addition to satisfying the prerequisites of Rule 23(a), at least one of the three
subdivisions of Rule 23(b) must be satisfied in order to qualify for class certification. Fed. R. Civ.
P. 23(b). Here, Plaintiff seeks class certification under both Rules 23(b)(2), for injunctive relief,
and 23(b)(3), for damages.
1. The Court Should Certify a Class Seeking Injunctive Relief Under Rule 23(b)(2)
Rule 23(b)(2) supplies a basis for certification where, as here, the Defendants “ha[ve]
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acted or refused to act on grounds that apply generally to the class, so that final injunctive relief
or corresponding declaratory relief is appropriate [for] the class as a whole.” Fed. R. Civ. P.
23(b)(2). Defendants have acted on grounds that apply generally to the Class by designing and
operating a Scheme to fraudulently induce Borrowers by oral misrepresentation and material
omissions into purchasing valueless yet costly Dealer Services financed by EAC at usurious
rates. Supra at 3. The same declaratory and injunctive relief — that EAC stops collection on the
Credit Plans, that EAC is prohibited from selling or otherwise transferring the Credit Plan, that
EAC take steps to remedy harm to Class Members’ credit, and that EAC cooperates with efforts
to recover against the Dealers — would provide relief for close to every members of the Class.
Tarantolo Decl. ¶¶ 29-33. Certification under Rule 23(b)(2) is therefore appropriate because the
declaratory or injunctive relief Plaintiffs seek would “benefit[] all [the Class Members] members
at once.” Dukes, 564 U.S. at 362.
2. The Court Should Certify a Class Seeking Damages Under Rule 23(b)(3)
Plaintiffs and the proposed Class seek provisional certification of a Class under Rule
23(b)(3) because they are entitled to actual, statutory, and punitive damages under RICO (18
U.S.C. § 1964(c)), TILA (16 U.S.C. § 1640(a)(2)(B)), N.Y. G.B.L. § 349(h), and common law
fraud. Rule 23(b)(3) certification is appropriate here, because common issues of fact and law
predominate over individual issues, the class action is superior to other methods of adjudication,
and the proposed class is ascertainable. See Fed. R. Civ. P. 23(b)(3).
(a) Common Questions Predominate
Certification under Rule 23(b)(3) requires that questions of law or fact common to the
class predominate over individual questions. “The predominance requirement is satisfied if
resolution of some of the legal or factual questions that qualify each class member’s case as a
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genuine controversy can be achieved through generalized proof, and if these particular issues are
more substantial than the issues subject only to individualized proof.” In re U.S. Foodservice Inc.
Pricing Litig., 729 F.3d 108, 118 (2d Cir. 2013) (citation omitted). The rule does not require that
individual questions be absent; to the contrary, “[t]he text of Rule 23(b)(3) itself contemplates
that such individual questions will be present.” Sykes II, 780 F.3d at 81.
Common questions of law and fact predominate in this action because the claims of
Plaintiffs and the Class arise from Defendants’ uniform conduct and would require generalized
proof. Class certification is plainly appropriate as to Plaintiffs’ TILA claims, as all putative class
members received financing from EAC through Credit Plans materially identical to the ones
issues to Ms. Williams and Mr. Turner, each of which lacks the same disclosures. “[C]ases
regarding the legality of standardized documents . . . often result in the predomination of
common questions of law or fact and are, therefore, generally appropriate for resolution by class
action.” Sykes v. Mel Harris and Assocs. LLC, 285 F.R.D. 279, 293 (S.D.N.Y. 2012) (“Sykes I”)
(quotation omitted). Here, where all putative class members received standard form documents
that all violated the same statute in the same manner, class certification is straightforwardly
appropriate.
As to Plaintiffs’ RICO and related fraud claims, common questions of law and fact
predominate because Plaintiffs allege that Defendants designed and operated a Scheme that
could only function if Dealers made materially similar oral misrepresentations and oral and
written omissions to all Class Members. Tarantolo Decl. ¶ 9. Some specifics of Dealers’ oral
misrepresentations may have varied among Borrowers, but the misrepresentations all fell into
common, uniform categories, which include: false promises of “student loan forgiveness,” SAC
¶¶ 77-90; false representations that the Dealers’ worthless services were valuable, id. ¶¶ 91-110;
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failure to disclose the harms that the Dealers’ services could cause Borrowers, id. ¶¶ 111-119;
misrepresentations that the Dealers were affiliated with the U.S. Department of Education, id.
¶¶ 120-127); and misrepresentation of Borrowers’ payment obligations to their federal student
loan servicers and under the Credit Plan, id. ¶¶ 128-144.
Indeed, Plaintiffs are not required to identify a “closed universe of actionable
misrepresentations” to support class fraud claims. Ramiro Aviles v. S & P Glob., Inc, 380
F. Supp. 3d 221, 292 (S.D.N.Y. 2019). Rather, courts will find that class issues predominate
where the “nature of the alleged misrepresentations at issue” permit “legitimate inferences” to be
drawn as to class members’ reliance on them. In re U.S. Foodservice Inc. Pricing, 729 F.3d at
120 (emphasis added). This Court may draw the inference that the design and operation of
Defendants’ Scheme required common misrepresentations as well as common material
omissions in the Credit Plans because Plaintiffs have alleged that no rational Borrower would
have purchased Dealers’ valueless services with EAC’s predatory financing had they understood
their true nature. Tarantolo Decl. ¶ 9; see Seekamp v. It’s Huge, Inc., 2012 WL 860364, at *10
(N.D.N.Y. 2012) (certifying a class whose members relied on the common “implicit
representation” of a product’s “legality and beneficialness in decided whether to purchase it”).
Because resolution of the legal and factual inquiries that underlie Plaintiffs’ RICO and related
fraud claims can be achieved by “generalized proof,” common issues predominate over
individual issues and class certification is appropriate. In re U.S. Foodservice Inc. Pricing Litig.,
729 F.3d at 118.
(b) A Class Action Is the Superior Method of Adjudication
Rule 23(b)(3) also requires that “a class action is superior to other available methods for
fairly and efficiently adjudicating the controversy.” Fed. R. Civ. P. 23(b)(3). Adjudicating claims
stemming from materially identical Credit Plans in a single action avoids an unwieldy number of
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repetitive individual lawsuits. See Sykes I, 285 F.R.D. at 294. Courts also find that damages class
actions under Rule 23(b)(3) “can be superior precisely because they facilitate the redress of
claims where the costs of bringing individual actions outweigh the expected recovery,” as
“substituting a single class action for numerous trials in a matter involving substantial common
legal issues and factual issues susceptible to generalized proof achieve(s) significant economies
of “time, effort and expense, and promote uniformity of decision.” In re U.S. Foodservice Inc.
Pricing Litig., 729 F.3d at 130 (internal citations omitted). The substantial common legal and
factual issues in Plaintiffs’ case are subject to generalized proof, and overwhelm the
comparatively small factual distinctions as to the damages owed to each Class Member, make
proceeding on a class basis far more economical for Class Members and the Court. Lastly, as
many Class Members may lack the means or incentive to pursue their claims on their own,
Tarantolo Decl. ¶ 26, certifying a Rule 23(b)(3) class action here would help to vindicate “the
rights of groups of people who individually would be without effective strength to bring their
opponents into court at all.” See Amchem Prod., Inc. v. Windsor, 521 U.S. 591, 617 (1997).
(c) The Proposed Class Is Ascertainable
Rule 23(b)(3) “contains an implicit threshold requirement that the members of a proposed
class be readily identifiable, often characterized as an ‘ascertainability’ requirement.” In re
Petrobras Sec., 862 F.3d 250, 264 (2d Cir. 2017) (internal quotation omitted). The membership
of Plaintiffs’ proposed Class is not only ascertainable, in that it is defined “using objective
criteria that establish a membership with definite boundaries,” id., but it has already been
ascertained—the identities of the 79,656 individuals who are in the Class are contained in
Defendants’ records and will be provided to the Class Administrator to effectuate accurate and
timely notice and claims administration. Tarantolo Decl. ¶ 25.
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E. NYLAG and Quinn Emanuel Satisfy the Rule 23(g) Prerequisites for Appointment as Class Counsel
Rule 23(g)(1)(A) sets forth the factors a court must consider in appointing class counsel:
“(i) the work counsel has done in identifying or investigating potential claims in the action;
(ii) counsel’s experience in handling class actions, other complex litigation, and the types of
claims asserted in the action; (iii) counsel’s knowledge of the applicable law; and (iv) the
resources counsel will commit to representing the class.” Fed. R. Civ. P. 23(g)(1).
NYLAG is a nonprofit organization that provides high quality, free civil legal services to
low-income New Yorkers in a number of fields, including consumer protection. NYLAG is
highly experienced in class actions and other large and complex matters involving complicated
legal and factual issues. NYLAG has successfully litigated dozens of class actions to benefit
poor New Yorkers, and has been appointed class counsel in many cases.18 Tarantolo Decl. ¶ 62.
Quinn Emanuel is a large law firm with over 800 attorneys that focuses on complex
commercial litigation. Oblak Decl. ¶ 2. Quinn Emanuel has extensive experience in handling
large class actions and complex disputes on a nation-wide scale and has been appointed as class
counsel in dozens of cases. Id. ¶ 4.
18 See, e.g., Mayfield v. Asta Funding, No. 14-CV-2591 (LAP)(JLC) (S.D.N.Y.), ECF No. 130 (Apr. 10,
2018) (appointing NYLAG Class Counsel for settlement class comprising over 60,000 low-income New York City consumers in FDCPA action); Salazar v. DeVos, No. 14-CV-1230 (RWS) (S.D.N.Y.), ECF No. 72 (Aug. 8, 2017) (appointing NYLAG Class Counsel for settlement class comprising over 60,000 low-income student loan borrowers); Philemon v. Aries Capital Partners, Inc., No. 18-CV-1927 (CLP) (E.D.N.Y.), ECF No. 52 (July 1, 2019) (preliminarily appointing NYLAG Class Counsel for settlement class of low-income New York City consumers in FDCPA action); Flores v. Technical Career Institutes, Inc., Adv. Pro. No. 18-01554 (MKV) (Bankr. S.D.N.Y.), ECF No. 25 (Sept. 6, 2019) (appointing NYLAG Class Counsel for settlement class of low-income New York City consumers in fraud action); Shakhnes ex rel. Shakhnes v. Eggleston, 740 F. Supp. 2d 602, 628 (S.D.N.Y. 2010), vacated in part on other grounds sub nom. Shakhnes v. Berlin, 689 F.3d 244 (2d Cir. 2012), cert. denied sub nom. Proud v. Shakhnes, 569 U.S. 918 (2013); Sims v. Bank of Am. Corp., No. 06-CV-5991 (CPS)(JMA), 2008 WL 479988, at *8 (E.D.N.Y. Feb. 19, 2008) (certifying class and appointing NYLAG class counsel).
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IV. CONCLUSION
For the foregoing reasons, Plaintiffs respectfully request that the Court grant the Parties’
settlement preliminary approval, provisionally certify a class in this matter for settlement
purposes, provisionally appoint NYLAG and Quinn Emanuel as class counsel, and direct notice
to the Class Members and enter the proposed Preliminary Approval Order, attached to the
Tarantolo Declaration as Exhibit 5.
Dated: March 15, 2021 New York, New York
/s/ Jonathan Oblak . Jonathan Oblak Anna Deknatel Sophia Qasir QUINN EMANUEL URQUHART & SULLIVAN, LLP 51 Madison Avenue, 22nd Floor New York, NY 10010 (212) 849-7000 jonoblak@quinnemanuel.com
/s/ Danielle Tarantolo . Danielle Tarantolo Jessica Ranucci NEW YORK LEGAL ASSISTANCE GROUP 7 Hanover Square New York, NY 10004 (212) 613-5000 dtarantolo@nylag.org
Counsel for Plaintiffs
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