A racketeering lawsuit against Sherman Financial Group, one of the country's largest debt buyers, can't move forward as a class action, a federal judge in Indianapolis has ruled.

U.S. District Judge Tanya Pratt said circumstances vary too much among class members and individual proof would be needed for each class member to support their claims that Sherman subsidiaries didn’t own consumers' debt when they tried to collect it. The legal action was originally filed Nov. 9, 2012. 

While the decision discusses legal standards for class action certification, the key point was that after three years of litigation and discovery the plaintiffs failed to offer evidence that their debts were actually securitized. The order states that "underlying the argument that [defendants] did not own the plaintiffs’ debts is the plaintiffs’ understanding of the effects of securitization on the debts. Plaintiffs allege that shortly after a consumer assumes a debt obligation or receivable, the originating bank, through subsidiaries, pools the receivable with others into a financial instrument that can be sold to outside investors, which results in the creation of an asset-backed security.” 

According to Pratt’s decision, “if the named plaintiffs’ debts were not securitized and the plaintiffs must rely on a securitization theory to establish their claims, then the named plaintiffs’ claims are not typical of the class. Alternatively, if the named plaintiffs’ debts were securitized but the plaintiffs’ attorney cannot demonstrate securitization for even the four named plaintiffs, let alone a class of tens of thousands of Indiana consumers, the plaintiffs may not be adequate for purposes of class certification.

The case would require an individualized review of the history of each plaintiff’s debt obligation, from creation and securitization through non-payment, write-off, sale and attempted collection. Because of the significant number of individualized factual issues, the plaintiffs’ claims appear to be unmanageable as a class action under any definition."

 

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