THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Friday, January 13, 1995 TAG: 9501130493
SECTION: LOCAL PAGE: B1 EDITION: FINAL
SOURCE: BY MARC DAVIS, STAFF WRITER
DATELINE: NORFOLK LENGTH: Medium: 76 lines
Lawyers will get about two-thirds of the $400,000 cash settlement that car dealer Charlie Falk has offered to 1,206 customers who say he cheated them.
That means each customer will get just $84.58 cash from the class-action lawsuit, after deducting lawyer fees plus other legal costs, if the court approves the settlement.
But the customers would also get a much bigger - though less direct - benefit from the settlement: Falk would wipe out $10.5 million in outstanding debts to about 6,000 customers.
Viewed that way, the lawyers' fees and costs are only 3 percent of the settlement value.
Details of the settlement were discussed Thursday in Norfolk's federal court. Judge John A. MacKenzie delayed approving the settlement for at least two weeks, to resolve a side issue.
About 25 Falk clients, most in sweaters and jeans, sat in the courtroom's spectator benches, straining to hear six lawyers in pinstriped suits explain the settlement to the judge.
MacKenzie asked whether any of the customers objected to the settlement. None did.
For many Falk customers, the restoration of good credit is more important than the cash. Each claimant against Falk owes an average of $4,000 on a defaulted car loan.
The customers who filed claims bought cars from Falk, took loans from him or his companies, defaulted on the loans, lost their cars to repossession suffered ``deficiency judgments'' in court.
A deficiency judgment is what a borrower owes after deducting the value of the repossessed car from the defaulted loan. Lawyers charged that Falk placed artificially low values on repossessed cars, and got inflated deficiency judgments against former customers.
``I'm just glad not to have that judgment against me anymore,'' said Starlette Seamster, one of the four original plaintiffs in the lawsuit. ``It was just a thorn in my side.''
An Elizabeth City man - who owes about $8,000 on a car that he says never ran right - echoed her sentiments.
``I just want my credit clear,'' said Donal Ray Gibbs, a 33-year-old sanitation worker. ``He just messed up everything for me.''
The lawsuit was filed in 1993 by four women from Norfolk and Portsmouth who bought cars from Falk, defaulted on loans, then lost the cars to repossession. All were threatened with court judgments of $2,743 to $3,661 for the unpaid parts of their loans.
The lawsuit accused three businesses - Charlie Falk Auto Wholesale, JB Collection Corp., which is owned by Falk, and a finance company - of racketeering, fraud and other illegal acts against customers.
A judge later dropped the racketeering charge and dismissed the finance company from the case.
The settlement was announced in October. Besides the $400,000 cash and forgiven debts, Falk agreed to change his repossession policies, giving customers more notice after they default on loans, and paying more money to them for cars he repossesses.
The lawyer's fees will come from the $400,000 settlement fund. Six law firms or public-interest groups will split $265,000 in lawyer fees. An additional $33,000 will pay for related costs.
In court papers, the lawyers argue that these fees are only 2.4 percent of the total settlement value, if you include the $10.5 million in forgiven loans. The lawyers also said they reduced their fees because it is a public-interest case.
``In this case,'' the lawyers argued in a court brief, ``the risks were extraordinary and the settlement achieves a valuable result. The amount sought as compensation recognizes these risks, but also takes into account the public-interest nature of the suit.''
The judge may approve the settlement at a hearing Jan. 23.
KEYWORDS: LAWSUITS by CNB