When Chana Hecht filed a statewide class action against the United Collection Bureau in August 2010, she had no idea that her claims had already been resolved in a nationwide class action United Collection settled earlier that year. And why would she? United Collection and class counsel in the case never mailed out notices to the 2 million or so people who allegedly received improper telephone communications from the collection agency. Since the settlement was so small -- only about $26,000 for unnamed class members -- the agreement called for the funds to be split between two charities, rather than divvied up by the class. Notice of the cy pres settlement was published in a single advertisement in USA Today. According to an opinion from the 2nd Circuit Court of Appeals last week, not a single member of the class responded to the ad.

Nevertheless, U.S. District Judge Mark Kravitz of New Haven, Connecticut, dismissed Hecht's suit in March 2011, ruling that she was bound by the class action settlement. After all, Kravitz said, there would be no reason for defendants to settle class actions "if the resolution of such claims could never bind absent, unnamed class members."

Kravitz isn't alone in that sentiment. It's exceedingly rare for courts to permit after-the-fact challenges by class members who didn't raise objections to settlements that received final approval. According to Hecht co-counsel Brian Wolfman of Georgetown's Law Center, there have been only eight or nine such "collateral attacks" in the history of the federal judiciary. But one of those cases was in the 2nd Circuit, which ruled in Stephenson v. Dow in 2001 that two Vietnam War veterans who claimed to have been exposed to Agent Orange were not adequately represented in Dow's Agent Orange class action settlement, so the class agreement didn't bar their claims.

Wolfman and Hecht co-counsel Lawrence Katz of The Law Offices of Lawrence Katz cited Stephenson in their appeal to the 2nd Circuit, arguing, among other things, that Hecht had not received constitutionally adequate notice that her claim against United Collection had been settled. United Collection counsel from Abrams, Gorelick, Friedman & Jacobson countered in a response brief that whatever Hecht's problems with the settlement, the doctrine of res judicata prevents her from relitigating issues that neither she nor anyone else previously raised in the class action. Any other result, the brief said, would violate United Collection's due process rights. And besides, the collection agency asserted, the ad in USA Today was adequate notice.

The 2nd Circuit panel -- judges John Walker, Chester Straub and Rosemary Pooler -- disagreed on both points. The appeals court first found that Hecht had a due process right to notice because the class action predominantly sought money damages, even though the final settlement also included injunctive relief. The court then explained that the USA Today ad wasn't adequate notice. "We are aware of no case in our circuit holding that a single notice published in a single publication satisfied either due process or [class action rules]," wrote Pooler. "To the contrary, when courts have approved notice by publication, they have tended to do so where the notices either ran more than once or appeared in more than one publication."

The 2nd Circuit also expressly rejected the argument that "lesser notice" was adequate since class members weren't getting any money anyway. To the contrary, Pooler wrote, individual class members were not informed that their statutory damages under the Fair Debt Collection Practices Act were up to $1000, even though the statutory maximum for classwide damages was only about $26,000. "Given this contrast between the damages available to unnamed class members and those available to individual plaintiffs, it was all the more important that Hecht receive adequate notice before being deprived of her individual right to sue," the court said.

Wolfman said it was "silly" for United Collection and class counsel to assume the single ad was enough notice in a case in which class members ceded their right to $1000 damages in exchange for nothing. "This decision will send a signal to defendants -- this better not happen in the future or you're leaving yourself open to collateral attacks," he said. United Collection counsel Barry Jacobs of Abrams Gorelick didn't return a phone call requesting comment.

(Reporting by Alison Frankel)

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