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Encore Capital falls after court scuttles 'robo-signing' accord

San Diego-based Encore Capital Group Inc. fell the most in more than three months after a U.S. appeals court scuttled its settlement of national litigation related to the "robo-signing" of court documents.

The Cincinnati-based court on Tuesday rejected as unfair a 2011 agreement that would have settled potential claims against the debt collector of an estimated 1.4 million class members for as little as $10 a person while allocating $8,000 to the four lead plaintiffs and expunging any debts two Encore (Nasdaq: ECPG) units sought to collect from them.

Unnamed class members were also barred by the agreement from defending themselves in collection cases by claiming Encore's Midland Capital Management Inc. was creating, and its Midland Funding LLC was using, affidavits signed by people without personal knowledge of their accuracy, a practice known as robo-signing.

"The disparity of the relief afforded under the settlement to the named plaintiffs, on the one hand, and the unnamed class members on the other hand, made the settlement unfair," the unanimous three-judge appeals panel said in its ruling.

Encore fell $2.26, or 7.2 percent, to close Tueday $29.08.

The panel described the final payout of $17.38 a claimant and a year of injunctive relief during which the Encore units were required to change their policies as "perfunctory at best."

Reverses ruling

It reversed the settlement approval by U.S. District Judge David Katz in Toledo and returned the case to him for further proceedings.

Tuesday's ruling will allow other pending class actions frozen by the settlement to go forward while allowing individual litigants to raise the robo-signing issue in their own cases, said Charles Delbaum of the National Consumer Law Center in Boston, who argued the case for the settlement objectors.

"The decision doesn't bar the parties from attempting to work out a nationwide settlement," Delbaum said in a phone interview. "It just points out all the ways in which this one was deficient."

Dennis Murray Sr. of Sandusky, Ohio, who argued for the settling plaintiffs, said the ability to craft a new accord depends upon the defendants and upon the courts.

"The conflict between the named plaintiffs and the class as to the paucity of benefits to the class, that's still going to stand, even if you resolve the $8,000 and resolve doing nothing with regard to their debts," he said.

The court must still decide whether the planned payment of $10 a class member, which increased to $17.38 after their claims were tallied, is adequate relief to the class, Murray said.

More difficult, he said, is whether Midland will settle without the assurance the robo-signing issue won't be raised elsewhere.

"Whether Midland is willing to do that or not, I do not know," Murray said.

Gregory Call, general counsel for Encore Capital, didn't immediately respond to a phone message seeking comment.

The case is Vassalle v. Midland Funding LLC, 11-3814, U.S. Court of Appeals for the Sixth Circuit (Cincinnati).


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