Bankruptcy Court Shuts the Door on Trustee's Settlement of TCPA Claim

By: Caren Enloe and Parker Dozier

September 26, 2016

A bankruptcy court has dealt a blow to a TCPA defendant’s attempt to moot a class action lawsuit by entering into a settlement with the class representative’s bankruptcy trustee.  In re Presswood, Case No. 12-60237 (Bankr. S.D. Ill. 2016).   In Presswood, the Chapter 7 debtor, a sole proprietor, received two prepetition faxes which he alleged violated the TCPA.  Three years after filing a Chapter 7 bankruptcy, the debtor filed a class action for violations of the TCPA.  After filing the class action, the debtor amended his bankruptcy schedules to disclose the pre-petition TCPA claim, valuing the claim at $500 and seeking to exempt it on his Schedule C.   The trustee did not object.  Thereafter, the trustee entered into a proposed settlement with the TCPA defendant for $10,000.00 and filed an application to approve compromise.  The debtor objected, calling into question the trustee’s standing and submitting that the proposed settlement amount grossly exceeds the value of the claim.  Specifically, the debtor alleged that the settlement was an attempt to “buy off” the class action.

The bankruptcy court in reviewing the application to approve settlement first addressed the issue of the standing of both the debtor to object to the proposed settlement and the trustee to settle the suit.  In reviewing the two competing interests, the court noted that, in order for the debtor to have standing, he must have a pecuniary interest in the outcome.  However, “if as posited by the Debtor on his amended Schedule C, the cause of action is actually worth no more than the claimed exemption, the issue becomes not whether the Debtor has standing to challenge the Trustee’s proposed settlement, but, rather, whether the Trustee has standing to settle a suit that is not property of the bankruptcy estate.” 

After conducting a valuation hearing as to the value of the debtor’s TCPA claim based upon two faxes, the court determined that it could not find that the value of the TCPA claim exceeded the $500 exemption claimed by the debtor.  Moreover, the court was troubled by the fact that there were no other class representatives and that a dismissal of the debtor’s claims would defeat the class action in its entirety because the statute of limitations had run.  “By offering to settle the estate’s claim for $10,000, which is over three times more than the highest possible recovery under the relevant sections of the TCPA and twenty times the value supported by the evidence, the Court can only conclude that Pernix is attempting to “buy off not only the estate’s claim but those of all of the other putative class members as well.”

This case is reminiscent of the spate of recent offer of judgment cases. See Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663 (2016).  Defendants’ attempts to moot class actions by settling with the named plaintiff have met the same fate as the defendant in this case.  Ironically, the defendant in this matter had a better chance of the settlement being approved, and therefore the class action being dismissed, if it had offered a lower, more realistic settlement amount to the trustee.  Offering $1,000.00 instead of $10,000.00, which the court found suspect, could have led to the settlement being approved and the class action’s dismissal because the statute of limitations would have been a bar to a new named plaintiff being substituted.