Class Actions – Justice Modifies Ex Officio a Court-Approved Settlement Agreement

A few months ago, some irregularities in settlement agreements executed by consumer associations in the context of class actions were made public, and criminal prosecutions initiated. The problem was that the agreements had not resulted in an actual benefit for the consumers and users represented by the plaintiff associations. Instead, they represented significant fees for the attorneys of the plaintiffs and an important benefit for the defendants.

Within this scenario, on March 22, 2013, Commercial Court No. 3, Secretariat No. 5, decided to amend ex officio the settlement agreement which had been approved by the court on November 29, 2010, in the framework of the collective action “ADECUA v. Banco Privado de Inversiones S.A. s/Ordinario”.

The mentioned settlement agreement provided, among other things, that the defendant bank would reimburse its clients “…the difference between what was effectively collected as credit-life insurance charge, and the amount resulting after applying 1.4% a month over the debit balance for the period between March 2007 and the approval of this settlement agreement…”. To that sum, interest would be added.

In order to make the reimbursement, the bank undertook to publish edicts so that each customer could opt out of the settlement agreement reached or demand payment of the sums involved.

More than two years after the agreement had been approved, by means of the power conferred in Section 558 bis of the Argentine Civil and Commercial Procedural Code, the judge scheduled a hearing for March 21, 2013 in order to be informed about the degree of compliance of the agreement. On that occasion, the bank stated that: (a) there were approximately 135,000 clients of the bank; (b) there were some clients who had not paid the credit-life insurance charge for commercial reasons, and the bank did not have the technical conditions (data base) required to determine one or the other; (c) the edicts had been published in the proper manner; (d) 27 clients of the bank had asked for the agreed reimbursement, and the bank had paid out a total of AR$ 13,062; and (e) no client had opted out of the settlement agreement.

With respect to plaintiff, the judge stated that the association had not defended consumers in the way it should have, as it should have reported the breach of the agreement –only 27 clients had been paid-, “…if not, the defense of the rights they preach is only a declamatory act without effective realization…”. In this regard, the judge decided to communicate this situation to the corresponding authority in order to adopt the necessary administrative measures.

Furthermore, the judge decided to alter the form of execution of the agreement with the explicit aim that the creditors could make the recognized right effective. Hence, the lower court ordered the defendant to deposit the total sums due, plus interest, in the accounts that clients still maintain with the bank within 10 days.

With the aim of publishing this measure, the judge set out to: (a) publicize the ruling and the date when the sums would be available in the three following statements of account of each of the clients; and (b) publish edicts for two days in the newspapers of broadest circulation. In such edicts, the existence of funds deposited in the judicial deposits bank (Banco Nación Argentina) must be informed to former clients of the bank included in the agreement. The information concerning the complete list of beneficiaries as well as the amounts to be paid must also be available for reference in each of the branches and in the headquarters of the bank.

Amongst the grounds of this unusual decision, the judge pointed out that the bank should be able to overcome the difficulties it had outlined, as regards the impossibility of determining the number of clients to benefit from the agreement, since the financial entity is a highly professionalized trader. Also, the judge added that if the agreement were considered to have been fulfilled despite the fact that only 27 out of 135,000 clients were actually reimbursed by the bank that would mean an unjustifiable enrichment by the bank.

Even though the decision is not final, this is a landmark ruling, which deserves two observations.

On the one hand, the lower court emphasized the inadequate efforts of by the plaintiff association, and that the appropriate representation of all consumers is one of the admissibility requirements of a class action according to what the Supreme Court ruled in the “Halabi” case (see Marval News # 81, “Class Actions: Landmark Ruling by the Supreme Court”).

On the other hand, the ruling in question introduces a significant uncertainty since it modifies ex officio the terms of a settlement agreement, which had been analyzed and approved by the same tribunal years before.