NEW YORK (Legal Newsline) – Plaintiffs lawyers won’t recover anything after a federal judge decided to throw their $500,000 in requested fees into a separate fund created by a criticized class action settlement that she otherwise approved.
On Oct. 9, New York federal judge Denise Cote denied the fees request of Selendy & Gay and Phillips, Richard & Rind, finding the lawyers' papers seeking preliminary approval, and therefore the class notice, did not clearly disclose AFT’s role in funding the litigation.
The firms were pursuing a class action on behalf of teachers who say Navient failed to recommend they use a loan forgiveness program designed for public employees with student debt.
The lawsuit was the brainchild of the American Federation of Teachers and private law firms, as well as the Student Borrower Protection Network – a group started by former federal officials who helped the Consumer Financial Protection Bureau bring litigation against Navient a year earlier (it is still pending).
“The court declines to reach the merits of the fees application because counsel’s papers, and therefore the class notice, did not disclose that the American Federation of Teachers had paid counsel’s fees or that an attorneys fees award would be used to reimburse AFT for those payments,” Cote wrote.
When those firms pushed for approval of the settlement – which created a help center but did not provide any money to members of the class – they told Cote the $500,000 fees request was a bargain because they had spent more than $5 million pursuing the case.
Instead, that $500K will go into the now-$2,250,000 cy pres fund that creates a help center for public employees struggling with student debt.
The case claimed Navient gave the teacher-plaintiffs bad advice regarding the Public Service Loan Forgiveness program. The law firms have also sued the Department of Education.
After 120 qualifying payments, student debt is forgiven for public service workers like teachers who are working full-time under the PSLF.
Navient, which is contracted by the Department of Education to advise borrowers struggling with payments, is alleged to have confused those borrowers as to whether PSLF debt-forgiveness would be available to them.
For instance, Navient judges its employees on how long they take to resolve a borrower’s concerns – a practice that allegedly steers its reps from suggesting complicated relief programs like PSLF.
The lawsuit was ambitious, seeking class certification nationwide of people who were eligible for PSLF and contacted Navient, as well as four sub-classes of the same in Maryland, Florida, New York and California.
But less than a year after it was filed, Judge Denise Cote pared all of that down to only the proposed New York class. Out of 15 causes of action, just one based on New York law survived Navient’s motion to dismiss.
“It is not enough that the borrowers incidentally benefit from Navient’s performance under the Servicing Contracts,” Cote wrote. “Such incidental benefit does not rise to the level of intent to permit enforcement.”
Cote used words like “meritless” and “puzzlingly” to describe some of the plaintiffs’ claims. The argument for breach of an implied warranty of authority “makes little sense,” Cote wrote.
She also found certain allegations weren’t made specifically enough to meet standards for fraud claims. Most plaintiffs could only narrow the timeframe of their calls with Navient to within a year, and even though plaintiffs said Navient’s records could show the specific instances, Cote said, “It is of little consequence to this motion to dismiss that Navient may have maintained better records of these conversations than the plaintiffs did.”
A California plaintiff actually specified her calls down to the month, but the state law under which her claims arose does not cover loan servicers, Cote ruled.
Left standing was a claim for violation of New York Consumer Protection From Deceptive Acts and Practices Law. Ultimately, the only parties recovering anything from the settlement will be the named plaintiffs, who each will receive $15,000 service awards.
The Hamilton Lincoln Law Institute’s Center for Class Action Fairness objected to the settlement on Sept. 11, joining several individual class members who also wrote the court to complain.
The CCAF is a critic of the use of cy pres awards, which are controversial payments to organizations deemed to be tied to the case in some way. While it seems noble, it can also be used to boost the perceived value of a settlement and, in turn, increase the amount of fees lawyers can request.
The CCAF calls this settlement “the worst form of cy pres relief.”
“The settlement directs the full $1.75 million to a new organization without making any effort to compensate class members,” CCAF’s brief says.
“Public Service Promise purportedly will provide education and student loan counseling to borrowers employed in the public sector, but that mission provides no restitution or other appropriate relief for class members, including for the unjust enrichment claims on which the settlement is based, to class members no longer eligible for (Public Service Loan Forgiveness), or for those who already understand the program terms.”