UPDATE 1-US state AGs oppose settlement with Encore unit

Fri Jun 3, 2011 2:49pm EDT

* Attorneys general call settlement "paltry"

* Class-action suit targeted robo-signing of affidavits

* Settlement announced in February

* Encore shares down 1 pct (Updates with Encore comment)

NEW YORK, June 3 (Reuters) - A group of 38 state attorneys general is opposing a proposed class action settlement with an Encore Capital Group Inc (ECPG.O) unit over robo-signed affidavits.

The proposed settlement is "paltry" and unfair to consumers, the group said in a June 1 court filing.

The settlement, announced in February, would provide up to $5.7 million for 1.4 million class members. San Diego-based Encore, which often buys debt from credit card companies, agreed to settle claims that its Midland unit relied on false affidavits to bring debt-collection lawsuits.

"Under any interpretation, the ten-dollar-per-class-member settlement is not fair, reasonable or adequate to address the harm incurred," the attorneys general, led by New York Attorney General Eric Schneiderman, said in the filing in federal court in Ohio.

The attorneys general, from states including California, Ohio and Massachusetts, also said the agreement unfairly forces class members to release any claims against Midland, allowing the company to pursue claims against plaintiffs.

"The settlement strips class members of their right to defend against existing lawsuits and to seek to vacate judgments obtained through defendants' use of false and misleading affidavits," the attorneys general wrote.

They also objected to $1.5 million of fees for plaintiffs' counsel and a "generous" payment of $8,000 for the named plaintiffs in the case.

"Encore believes this settlement is fair, reasonable and adequate," Encore said in a statement. "The company is confident in the integrity and accuracy of the underlying debts at issue."

U.S. District Judge David Katz in Toledo, Ohio, preliminarily approved the settlement in March and set June 1 as the deadline for any objections. A fairness hearing is scheduled for July 11.

Plaintiffs' lawyer Dennis Murray Sr. of the law firm Murray & Murray did not immediately return a call seeking comment.

All 50 states are investigating robo-signing and other improper practices by banks in the mortgage industry.

In May, in a separate case, Minnesota sued Midland for filing robo-signed affidavits.

Encore shares were down 1 percent to $32.52 in afternoon trading on Friday.

The case is Vassalle et al v. Midland Funding LLC, U.S. District Court, Northern District of Ohio, No. 11-00096. (Reporting by Carlyn Kolker; Editing by Steve Orlofsky and John Wallace)

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