The Seventh Circuit Court of Appeals last week issued a ruling that brings to end a decade-old case involving the Telephone Consumer Protection Act, which, more importantly, ties the amount of legal fees recouped by the plaintiffs’ attorneys to the amount of money claimed by the entire class in a class-action lawsuit.
A copy of the ruling, in the case of Holtzman v. Turza, can be downloaded here.
This is the third — and, hopefully, final — time that the Seventh Circuit has issued a ruling in this case, which involved a class-action lawsuit that was filed after the defendant distributed a newsletter via unsolicited faxes to the plaintiffs. The District Court ordered the defendant to pay $500 to each of the 8,430 recipients of the fax, an amount that totaled $4.2 million. The original plan was to distribute the sum to the class participants and then donate any unclaimed funds to charity.
The ruling was appealed to the Seventh Circuit, which upheld the summary judgment but remanded the distribution of unclaimed funds to charity back to the District Court. The District Court then applied the following formula: attorneys for the plaintiffs would receive $1.4 million, or one-third of the settlement. The remaining settlement funds, $333 per fax, would be distributed to the class participants. Should there be any money that went unclaimed, a second distribution would be made to those who participated in the first round, awarding them up to $500 per fax. Anything left after the attorneys received their funds and all of the participants received $500 would go back to the defendant.
The defendant appealed again.
Last year, the Seventh Circuit ruled again, saying the formula violated the American Rule, which requires that litigants cover their own legal fees, because the lawyers were receiving one-third of each $500 award regardless of whether the injured party claimed the funds or not. As well, the second distribution would allow some class members to receive $500 while also requiring the defendant to pay legal fees on top of that amount, which would raise the total penalty above the $500 limit as set forth by the TCPA. The TCPA does allow for higher damages in the event of a willful or knowing violation, which was not the case here.
The Seventh Circuit remanded the case back to the District Court, this time telling it how to disburse the funds. Participating class members will receive $333 per fax. For every $333 check that is cashed, $167 will be paid to the plaintiff’s lawyers. Any remaining funds will be returned to the defendant.
From Kristen Hawes, of Baker & Hostetler:
The Seventh Circuit’s opinion is notable for class actions because it ties class counsel’s recovery of attorneys’ fees, in the context of a judgment, to the amount claimed by the class. Moreover, the opinion serves as a reminder that defendants should carefully scrutinize judgments that may have the effect of improperly shifting attorneys’ fees.
