United States District Court, D. New Jersey
December 17, 2014
NICHOLAS FITZGERALD, on behalf of himself and all others similarly situated, Plaintiff,
GANN LAW BOOKS, GANN LEGAL EDUCATION FOUNDATION, INC., and MICHAEL PROTZEL, Defendants
For NICHOLAS FITZGERALD, on behalf of himself and all others similarly situated, Plaintiff: AYTAN YEHOSHUA BELLIN, BELLIN & ASSOCIATES LLC, White Plains, NY.
For GANN LAW BOOKS, INC., GANN LEGAL EDUCATION FOUNDATION, INC., MICHAEL PROTZEL, Defendants: ALLYN ZISSEL LITE, MAYRA VELEZ TARANTINO, LITE DEPALMA GREENBERG, LLC, NEWARK, NJ.
Kevin McNulty, United States District Judge.
The Telephone Communications Privacy Act (" TCPA") makes it unlawful to send certain unsolicited advertisements to consumers by facsimile transmission, i.e., by fax. 47 U.S.C. § 227(b)(1)(C). In this case, the plaintiffs have brought a class action against Gann Law Books, Inc., Gann Legal Education Foundation, Inc., and Michael Protzel (collectively, " Gann"), alleging violations of the TCPA.
Now before the Court is a proposed final settlement, which incorporates a substantial award of attorneys' fees. A class action offers significant procedural advantages, especially in a case like this one, where a defendant has allegedly committed a large number of relatively small violations. It affords a remedy for relatively modest claims that might not have been efficiently pursued one-by-one. And, by holding out the potential of an award of attorney's fees, it gives counsel the incentive to pursue widely-dispersed claims on behalf of class members who, by definition, are not present in court. With those advantages, however, come certain pitfalls. In social science jargon, class actions address a collective action problem, but, in doing so, may create externalities.
Generally, those externalities arise from the class representative's assertion of the presumed rights and interests of persons who are not present to speak for themselves. Arm's length bargaining and the best efforts of ethical counsel will often, perhaps usually, ensure that the settlement is fair to the class. When a settlement is in the offing and a fee is imminent, however, the interests of the class members may no longer have an unconflicted advocate. I intend no criticism of any attorney now before the court; I merely state a structural reality.
Class counsel here are to receive their fee from the $1, 145, 000 fund that is also the source of the cash component of the class members' recovery. True, the attorneys' efforts created that fund, but it is also true that every dollar of their fee comes at the expense of class members (if only those who will share the residue of the fund after claims, expenses, and fees). From the perspective of defendant Gann, the cash fund is a sunk cost; economically, it makes no difference to Gann whether the cash goes to class members or class counsel. The Court thus has a particular responsibility to look out for the interests of the absent class members and to monitor the settlement and the award of attorneys' fees for reasonableness.
This Court preliminarily approved class certification and the proposed Settlement Agreement. See ECF No. 85. On November 13, 2014, the Court held a fairness hearing, at which the parties addressed the final approval of the settlement agreement; a $5, 000 incentive award for the class representative; and attorneys' fees, costs, and expenses.
The settlement provides for two essential forms of relief: cash, payable from a fund that totals $1, 145, 000, and free continuing legal education (" CLE") webinars. (Settlement Agreement ¶ ¶ 2(a) & (b)). More specifically:
(a) Class members who file a claim and attach a copy of the offending fax(es) will receive $175 per fax, up to a maximum of $875. Id. ¶ 10(a)).
(b) Class members who file a claim and do not attach a copy of the offending fax, but nonetheless include a declaration stating that at the relevant time, they owned the fax number to which an offending fax was sent, will receive an award of $125 per fax. Id. ¶ 10(b).
(c) Class members may additionally take either or both of two CLE webinars, which have a combined retail value of $230. Id. ¶ 2(a).
Any cash left in the fund after claims, fees, and expenses is to be distributed pro rata according to a specified scheme. Class members agree to release Gann from further liability for unsolicited faxes sent to them during the class period. Id. ¶ 13(a).
I first consider the terms of the settlement, and find that they are fair and reasonable. I next consider a proposed $5000 incentive fee to the class representative, and likewise find it to be fair and reasonable. The proposed award of attorneys' fees, however, is excessive, and must be reduced from $1, 008, 763.33 to $421, 577.
I. THE TERMS OF THE SETTLEMENT
Under Rule 23(e), a class action cannot be settled unless the court determines that the settlement is " fair, reasonable, and adequate." Fed.R.Civ.P. 23(e)(2). When a court considers whether a settlement meets these criteria, it considers nine non-exhaustive factors:
(1) the complexity, expense and likely duration of the litigation;
(2) the reaction of the class to the settlement;
(3) the stage of the proceedings and the amount of discovery completed;
(4) the risks of establishing liability;
(5) the risks of establishing damages;
(6) the risks of maintaining the class action through the trial;
(7) the ability of the defendants to withstand a greater judgment;
(8) the range of reasonableness of the settlement fund in light of the best possible recovery;
(9) the range of reasonableness of the settlement fund to a possible recovery in light of all the attendant risks of litigation.
Girsh v. Jepson, 521 F.2d 153, 157 (1975) (internal quotations and alterations omitted). Here, an examination of the Girsh factors yields the conclusion that this settlement is fair and reasonable. The Third Circuit has also identified additional factors that a court may, but need not, examine in evaluating a settlement. See In re Prudential Ins. Co, Am. Sales Practice Litig. Agent Actions, 148 F.3d 283, 323 (3d Cir. 1998). I have considered all of these factors, as appropriate, and have concluded that the settlement is fair and reasonable.
First factor .
The first Girsh factor considers the complexity, expense, and likely duration of the litigation. The factual issues here are concededly at the simpler end of the spectrum. It is nevertheless likely that continued litigation would be lengthy and expensive, particularly when considered in relation to the relatively modest amount of the individual claims. Gann has consented to class certification for the purpose of settlement, but has reserved its right to contest class certification if this settlement is not approved. See Settlement Agreement, ¶ 3. That issue alone might well require discovery and motion practice, adding time and expense to a matter that is already four years old. The settlement will deliver significant relief much more quickly. On balance, this factor favors, and certainly does not weigh against, settlement.
Second factor .
The second factor considers the reaction of the class to the settlement. It is tempting to characterize it as " indifference." Relatively few class members--many of them attorneys --filed a claim at all, but neither has there been any opposition. Of the 7, 769 class members who were notified of the settlement, 303, or 3.7%, filed a claim. No class member objected, and only one opted out. The Third Circuit has held that a " vast disparity between the number of potential class members who received notice of the Settlement and the number of objectors creates a strong presumption that this factor weighs in favor of the Settlement." In re Cendant Corp. Litig., 264 F.3d 201, 235 (3d Cir. 2001). This factor therefore favors settlement.
Third factor .
The third factor asks the court to " determine whether counsel had an adequate appreciation of the merits of the case before negotiating a settlement." Courts will consider, inter alia, " the stage of the proceedings and the amount of discovery completed." Girsh, 521 F.2d at 157. There was considerable motion practice in New Jersey state court and before this Court. The settlement was reached with the help of a mediator. (Fitzgerald Brief, 5). Class counsel are involved in numerous TCPA class actions, and therefore could evaluate the settlement from an informed perspective. (Gann Brief, 5-6). All of these circumstances indicate that class counsel had an adequate appreciation of the merits of the case when they negotiated the settlement.
Fourth factor .
This factor considers the risks the class would face in attempting to establish liability. Absent a settlement, class members would need to prove whether individual faxes violated the TCPA. That might involve proof that the individual recipient did not authorize the fax (47 U.S.C. § 227(b)(1)(C)(ii)), that any opt-out notices were not sufficient under TCPA, and that the fax qualifies as an advertisement (47 U.S.C. § 227(a)(5)). Such issues are mooted by this settlement, which permits recovery even by class members who no longer possess a copy of the offending fax. (Settlement Agreement, ¶ 10(b)). The risks of failing to establish individual claims, while not overwhelming, are real, and under this settlement they are minimized or eliminated. This factor therefore favors settlement.
Fifth factor .
This factor considers the risks the class will face in proving damages. The TCPA provides for damages of $500 for each fax found to violate the Act. 47 U.S.C. § 227(b)(3)(B). Statutory damages thus follow a finding of liability as a matter of course. An award is subject to trebling to $1, 500 if the plaintiff can prove that the defendant " willfully or knowingly" violated the TCPA. 47 U.S.C. § 227(b)(3). Trebling, however, is at the discretion of the court, and would require proof of the requisite intent, which may or not be forthcoming in an individual case. Id. And of course the relatively low ceiling on individual claims, even with trebling, might mean that such individualized proofs are uneconomical to pursue. This factor therefore favors settlement, if not strongly.
Sixth factor .
This factor considers the risks of maintaining a class action through trial. I am satisfied that this class meets the requirements for certification in Rule 23(a), Fed.R.Civ.P. Gann would likely challenge class certification, but the factual and legal issues appear to be similar across the class. Class certification, while involving additional time and cost, would likely be granted even over a defense objection. This factor is therefore neutral at best.
Seventh factor .
Class counsel are satisfied that " Defendants do not have the financial resources to satisfy a damages award that is significantly greater than what has been realized through this settlement." (Fitzgerald Brief, 26; Eilender Decl., ¶ 8; Bellin Decl., ¶ 6). There is some plausibility to this contention, but the parties have offered little evidence in support of it. Gann, a legal publisher, has made a cash fund available from funds that appear to have come mostly from its insurance carrier. See Fitzgerald Brief, 46-47. I take counsel at their word, but this factor is not well-established enough as an evidentiary matter to strongly favor settlement.
Eighth and Ninth factors .
These factors consider the settlement in light of the best possible recovery and the attendant risks of litigation. Here, the best possible statutory recovery for a proven violation (assuming the court did not allow treble damages) would be $500 per unsolicited fax. 47 U.S.C. § 227(b)(3)(B), As I discuss elsewhere ( see Part III.E, infra ), the claimants are to receive a substantial portion of that value. Claimants can recover between $125 and $175 per fax in cash (up to a maximum of $875), and may, if they wish, receive an additional $230 worth of webinars. Such an award is reasonably proportional to the best possible recovery. Even class members who filed no claim at all--who most commonly receive nothing in class actions--will receive a residual share of cash here. Depending on administration costs, even those class members who did not file a claim may to receive up to $87 apiece.
To reject the settlement would pose various risks: the cost and delay of challenges to class certification, the difficulty of making a claim without presenting a physical fax, and the possibility of a finding that any given fax did not violate the TCPA. The statutory cap on damages means that further litigation has a limited, ascertainable upside. Given those risks, and given the maximum statutory recovery, the recovery that this settlement provides is reasonable.
Prudential Factors .
The Third Circuit has also identified additional factors that a court may, but need not, examine in evaluating a settlement:
the maturity of the underlying substantive issues, as measured by experience in adjudicating individual actions, the development of scientific knowledge, the extent of discovery on the merits, and other factors that bear on the ability to assess the probable outcome of a trial on the merits of liability and individual damages; the existence and probable outcome of claims by other classes and subclasses; the comparison between the results achieved by the settlement for individual class or subclass members and the results achieved--or likely to be achieved--for other claimants; whether class or subclass members are accorded the right to opt out of the settlement; whether any provisions for attorneys' fees are reasonable; and whether the procedure for processing individual claims under the settlement is fair and reasonable.
Prudential, 148 F.3d at 323. Examining these factors is not obligatory. See In re Baby Products Antitrust Litig., 708 F.3d 163, 174 (3d Cir. 2013) (" Unlike the Girsh factors, each of which the district court must consider before approving a class settlement, the Prudential considerations are just that, prudential."). Not all of these factors are useful in evaluating this settlement, but a few of them are. The results achieved for claimants in this settlement constitute a substantial respectable percentage of what claimants could recover if they brought suit individually. See Part III.E, infra . I note, additionally, that the actual damages suffered by class members in this case are minimal to nonexistent, consisting perhaps of some wasted paper and ink. Any money recovered from the settlement should be more than enough to compensate class members for any loss they suffered.
The reasonableness of attorneys' fees is discussed in Part III, infra . Reduced in the manner I have prescribed, they are reasonable. I note also that in this case, the benefit of any reduction in attorneys' fees accrues directly to the class, reducing the danger of collusion between class counsel and the defendant. The claim procedures are simple, and make due allowance for those who have failed to retain what was, by hypothesis, an unwanted fax.
Based on the mandatory Girsh factors and, to some extent, the discretionary Prudential factors, I find that the settlement is fair and reasonable.
II. INCENTIVE AWARD
Class counsel propose that the named plaintiff, Nicholas Fitzgerald, be paid an incentive award of $5, 000. (Fitzgerald Brief, 59). A district court has discretion to approve an incentive award to the representative plaintiffs in a class action lawsuit. In re Janney Montgomery Scott LLC Fin. Consultant Litig., No. 06-3202, 2009 WL 2137224, at *12 (E.D. Pa. July 16, 2009). Such an award is intended to induce participation and to compensate the named representative for any risk undertaken or effort expended for the benefit of the class. See Montgomery v. Aetna Plywood, Inc., 231 F.3d 399, 410 (7th Cir. 2000); Varacallo v. Massachusetts Mut. Life Ins. Co., 226 F.R.D. 207, 257 (D.N.J. 2005).
Fitzgerald's duties with respect to this case were not particularly onerous. He reportedly attended seven hours of mediation, selected counsel, and " provided the documents necessary to prepare the Complaint" (presumably, the fax or faxes he received). (Fitzgerald Brief, 60). Joining this case entailed no significant amount of risk beyond the possibility of failing to recover statutory damages. On the other hand, however, the prospect of recovering a mere $500 might not entice an individual to take on the burden of being a class representative.
On balance, I am persuaded that an additional incentive payment is justified. The $5, 000 incentive payment agreed to here seems to be of the same order of magnitude as those awarded in other TCPA cases. See Grant, 2014 WL 888665 at *2 ($5, 000 incentive award); Arthur, 2012 WL 4076119 at *2 ($2, 500 incentive award to each class representative); Lo, 2012 WL 1932283, at *4 ($1, 500 incentive award); Rose, 2014 WL 4273358 at *13 ($2, 000 incentive award).
For those reasons, I will approve an incentive award to the class representative, Mr. Fitzgerald, in the amount of $5, 000.
III. ATTORNEYS' FEES
A. The $1 Million fee award claimed by class counsel under the proposed settlement
Under the proposed settlement, defendant Gann has agreed to create a cash fund of $1, 145, 000 and to make $1, 881, 290 worth of webinars available to claimants. The Settlement Agreement proposes that the value of the settlement be distributed as follows:
(a) $53, 625 in cash will be distributed to some 303 claims. (Fitzgerald Brief, 12-13).
(b) $5, 000 in cash will be paid to the named representative as an incentive award.
(c) $1, 008, 763.33 in cash will be paid to class counsel. (This would cover attorneys' fees as well as $15, 599.19 in expenses.)
(d) $77, 611.67 (the residue of the cash fund), less administration costs, will be distributed pro rata to all class members for whom the claims administrator has a valid address who did not file a claim.
(e) $49, 680 worth of Gann continuing education webinars will be furnished gratis to the 216 class members who requested this additional non-cash benefit. (Fitzgerald Brief, 13).
(f) $1, 831, 610 worth of webinars will go unredeemed, effectively " reverting" back to Gann.
Three features of counsel's fee request deserve emphasis.
First, plaintiffs' counsel arrived at its attorneys' fee request of $1, 008, 763.33 (item (c), above) by calculating a contingent fee of one third (33%) of a total settlement value of $3, 026, 290. That method of calculation is twice flawed. First, a 33% fee is high in comparison to settlements approved in other TCPA cases. Second, and more fundamentally, that total settlement value figure is inflated, because it includes the value of non-cash benefits that the participants surely suspected, and now know, the defendant will never pay The total settlement value of $3, 026, 290 comprises $1, 145, 000 (the cash fund) plus $1, 881, 290 (the theoretical cash value of the webinars if given to all class members). But the webinars will not be furnished to all 8, 000 class members; they will be furnished to 216 claimants. Those 216 webinars have a value of $49, 680, not $1.8 million. See Parts III.B, III.C, infra .
Second, class counsel's proposed fee represents nearly five times the value of the time it devoted to the case. According to class counsel's records, their hourly billings--the " lodestar" --come to just $210, 788.50. (Fitzgerald Brief, 57). The claimed fee of $1, 008, 763.33 amounts to 4.78 times those actual hourly billings. That multiplier, 4.78, is far higher than those typically approved in TCPA cases. See Part III.B, infra .
Third, the claimed attorneys' fees are just over $1 million, and the recovery of the class is just over $180, 000. Thus the payment to the attorneys dwarfs, not just the benefits to individual class members, but the aggregate benefit to the class itself. That in itself is not disqualifying, but it is a factor I will consider. See Part III.D, infra .
Tentatively, then, I have concerns that the fee award sought by class counsel may be disproportionate. I now discuss what level of fees would be reasonable. In doing so, I address the seven factors that Third Circuit courts consider in assessing the attorney fee award in common fund cases:
(1) the size of the fund created and the number of persons benefitted; (2) the presence or absence of substantial objections by members of the class to the settlement terms and/or fees requested by counsel; (3) the skill and efficiency of the attorneys involved; (4) the complexity and duration of the litigation; (5) the risk of nonpayment; (6) the amount of time devoted to the case by plaintiffs' counsel; and (7) the awards in similar cases.
In re Rite Aid Corp. Sec. Litig., 396 F.3d 294, 301 (3d Cir. 2005) (as amended Feb. 25, 2005).
B. The lodestar multiplier and contingent fee percentage compared to other TCPA class action settlements.
I first consider the contingent fee percentage and the lodestar multiplier, aspects of the settlement perhaps most relevant to Rite Aid factors six and seven (amount of time devoted to the case by plaintiffs' counsel and the awards in similar cases). The hourly-billing lodestar multiplier (here, 4.78) is a valuable " reality check* and basis for comparison even where (as here) counsel have calculated their fee on a contingent basis. See Rite Aid, 396 F.3d at 301. I also compare the 33% contingent fee percentage to percentages awarded in other cases. Taking the two methods together, the court may be more confident that a proposed fee is reasonable when the lodestar multiplier fee and the contingent fee come to rest in a kind of equilibrium.
In the lodestar multiplier method, the " lodestar" refers to the amount the attorneys actually billed on the case: i.e., the number of hours worked multiplied by the hourly rate. Billing at the hourly rate, however, may understate such factors as the risk of litigation, the benefit to the class, and the need to give an incentive to plaintiffs' counsel. Hence the " multiplier." The multiplier is a factor by which the hourly billing lodestar is multiplied to arrive at class counsel's fee award. In re Cendant Corp. PRIDES Litig., 243 F.3d 722, 732 (3d Cir. 2001). If, for example, counsel's hourly billing amounted to $10, 000, and the lodestar multiplier were set at 1.5, the fee award would be $15, 000. To select a multiplier (or assess the reasonableness of a proposed multiplier), courts have considered a number of factors: the quality of representation, the benefit obtained for the class, the complexity and novelty of the issues presented, and the risk of non-recovery. Rose v. Bank of Am. Corp., 2014 WL 4273358, at *6 (N.D. Cal. Aug. 29, 2014).
As noted above, class counsel here billed time at their usual rates totaling $210, 788.50. Net of expenses, the requested fee of $1, 008, 763.33 comes out to 4.78 times counsel's hourly billings. In other words, the requested fee, although calculated on a contingent basis, is equivalent to a lodestar-method award using a multiplier of 4.78.
I have surveyed class action settlements approved in other TCPA cases. Most involved lodestar multipliers significantly lower than 4.78. See Grannan v. Alliant Law Grp., P.C., No. C10-02803 HRL, 2012 WL 216522, at *1 (N.D. Cal. Jan. 24, 2012) (multiplier of 1.47), Rose, 2014 WL 4273358, at *1 (multiplier of 2.59); Harris, 2011 WL 4831157, at *7 (multiplier of 1.375); Michel v. WM Healthcare Solutions, Inc., No. 1:10-cv-638, 2014 WL 497031, at *2 (S.D. Ohio Feb. 7, 2014) (multiplier of 1.8); Vandervort v. Balboa Capital Corp., 8 F.Supp.3d 1200, 2014 WL 1274049 (C.D. Cal. 2014) (multiplier of 2.52); Grant v. Capital Mgmt. Servs., L.P., No. 10-CV-2471-WQH BGS, 2014 WL 888665, at *1 (S.D. Cal. Mar. 5, 2014) (multiplier of 0.8); Bellows v. NCO Financial Systems, Inc., No. 07-cv-1413, 2009 WL 35468 (S.D. Cal. Jan. 5, 2009) (multiplier of 1.793); Arthur v. Sallie Mae, No. 10-cv-0198, Doc. 225, Motion for Award of Attorneys' Fees and Costs, (May 17, 2012) (multiplier of 2.71); Ritchie, 2014 WL 3955268, at *3 (multiplier of 1.56).
Class counsel here calculated their fee as a one third, or 33%, contingent fee based on the alleged value of the settlement. A 33% recovery rate would be at the high end of what courts typically approve in TCPA cases. See, e.g., Michel, 2014 WL 497031, at *2 (court reduced the attorney fee award from one-third to 15%); Lo v. Oxnard European Motors, LLC, No. 11CV1009 JLS MDD, 2012 WL 1932283, at *1 (S.D. Cal. May 29, 2012) (attorneys' fees were 25% of the settlement fund); Arthur, 2012 WL 4076119 at *2 (19% of settlement); Ritchie, 2014 WL 3955268, at *3 (28% of settlement). Indeed, in the Ninth Circuit, the " benchmark" for a reasonable fee award in any common fund case (TCPA or otherwise) is 25%. See In re Bluetooth Headset Products Liab. Litig., 654 F.3d 935, 942 (9th Cir. 2011). The Eleventh Circuit has instructed district courts to use a range of 20%-30% as a benchmark for contingency awards in common fund cases. Waters, 190 F.3d at 1294.
I do not mean to say that a 33% contingent fee rate in a TCPA case is wholly unprecedented. Such a percentage was approved in Vandervort, 8 F.Supp.3d 1200, 2014 WL 1274049, at *7. The Vandervort court, however, justified the award in relation to several unusual factors present in that case. It was, for example, " the first case in which a court certified a nationwide class of recipients of fax advertisements allegedly violating the opt-out provisions of the TCPA." 8 F.Supp.3d 1200, Id. at *4. In addition, the Ninth Circuit law was unsettled as to a defense that the defendant raised regarding substantial compliance. The damages award could have triggered due process concerns, because claims could be based on either solicited or unsolicited faxes, irrespective of any established relationship between the defendant and the claimant. The defendant had vigorously opposed the case, which had required a " high degree of skill to litigate successfully." Id. at *7.
In Vandervort, moreover, the 33% award was proportional to the effort expended. It corresponded to a lodestar multiplier of 2.52 (not 4.78, as in this case). The payout to the class, too, was substantial and proportional. The attorneys' fees in Vandervort were about $1.1 million (very close to the $1.08 million claimed here). There, however, the amount paid out either to class members or to a cypres fund was about $2.1 million. Under Class counsel's proposal here, the actual payout of monetary and webinar benefits to the class is a fraction of that amount, around $181, 000. See Part III.D, infra .
Finally, as I discuss in Part III.C, infra, the true total value of this settlement is not $3 million, but approximately $1, 194, 680. Viewed from that perspective, the proposed attorneys' fees award of $1.08 million represents, not 33%, but approximately 84% of the settlement's value. And an 84% contingent fee is unreasonable by virtually any standard.
In sum, whether calculated as a lodestar multiplier of hourly billings, or as a contingent fee, the $1.08 million fee proposed here is an outlier when compared to awards approved in other TCPA cases.
C. The inflated $3 million dollar value of the settlement must be reduced to account for the unclaimed portion of the non-cash award, which effectively reverts to the defendant.
The first Rite-Aid factor, the " size of the fund created, " requires particular attention here. I conclude that class counsel's valuation of the settlement at over $3 million is inflated. The locus of that inflation is the portion of the award that consists of free continuing education webinars. There is nothing wrong, of course, with furnishing all or part of the benefit of a settlement in a form other than cash. As class counsel point out, most members of this class are probably attorneys, and New Jersey attorneys at that. Our State, like many others, requires attorneys to take continuing legal education courses. Such a webinar, furnished at no charge, confers a genuine benefit. The inflation comes in because it is a benefit only to the small minority of class members who have redeemed the offer. In short, to those who claim it the benefit is real, but to non-claimants (about 97% of the class) it is purely theoretical.
The proposed fee of $1, 008, 763.33 represents one third of the alleged total value of the settlement: $3, 026, 290.00. That " total value" was calculated by adding the cash fund ($1, 145, 000) plus the alleged value of the webinars ($1, 881, 290). The alleged value of the webinars, however, is based on the very unrealistic assumption that every single member of the class would claim the webinar benefit. (Fitzgerald Brief, 1-2). In fact, from a potential field of about 8, 000, only 216 class members actually submitted claims for the webinar benefit. So, of the theoretical $1, 881, 290 value of the webinars, class member claimants are actually to receive only about $49, 680. $1, 881, 290 minus $49, 680 equals $1, 831, 610. That $1, 831, 610--the lion's share of the value of the webinar benefit--is a phantom. It will never be supplied by Gann and will never be received by the class. Yet it makes up over 60% of the total settlement value ($3, 026, 290) on which class counsel base their contingent fee calculation. Its sole function at this stage of the case is to pump up the denominator of the contingent-fee ratio. See Part III.B, supra .
A more appropriate starting point for a contingency fee analysis is the benefit actually conferred; the $1, 145, 000 in cash, plus the $49, 680 in webinars actually redeemed by claimants. That amounts to a total settlement value of $1, 194, 680. That measure of the settlement value is appropriate for three reasons: First, it is consistent with Congress's preference as expressed in the Class Action Fairness Act (" CAFA"). Second, it excludes the portion of the settlement value that effectively reverts to Gann. And third, it is consistent with precedent and lies within the court's broad discretion, even under the cases cited by Class counsel.
1. The Class Action Fairness Act
I consider the Class Action Fairness Act's treatment of attorneys' fees in class action settlements that provide relief in the form of " coupons." That approach does not mandate a result here, but it is highly suggestive.
CAFA mandates that fees should be calculated based on the value of the coupons redeemed, not the value of the coupons issued .
(a) contingent fees in coupon settlements - If a proposed settlement in a class action provides for a recovery of coupons to a class member, the portion of any attorney's fee award to class counsel that is attributable to the award of the coupons shall be based on the value to class members of the coupons that are redeemed.
28 U.S.C. § 1712(a). Otherwise, the Act directs the Court in a coupon case to be guided by counsel's hourly billing:
If a proposed settlement in a class action provides for a recovery of coupons to class members, and a portion of the recovery of the coupons is not used to determine the attorney's fee to be paid to class counsel, any attorney's fee award shall be based upon the amount of time class counsel reasonably expended working on the action.
28 U.S.C. § 1712(b)(1).
Congress also told the court what to do in the case of a mixed settlement that provides for both coupon relief and equitable, or injunctive, relief. The coupon-relief portion of the attorneys' fee should be based solely on the value of the coupons actually redeemed, and the equitable-relief portion should be based on the attorneys' actual billing. 28 U.S.C. § 1712(c).
Congress did not explicitly address the possibility most analogous to the settlement here: a combination of coupon relief and money damages. One likely reason: by directing the court to consider the value of redeemed coupons only, the Act has already reduced the coupons to cash, which may simply be added to any other cash in the settlement. In effect, this would be treated as a cash settlement, not a " mixed" settlement at all.
I do not go so far as to hold that the fee proposed here is barred by the CAFA " coupon" provisions. Arguably, for example, an " entire product" (here, a webinar) is distinguishable from a " coupon" benefit. See Synfuel Technologies, Inc. v. DHL Express (USA), Inc., 463 F.3d 646, 654 (7th Cir. 2006) (" We recognize that the pre-paid envelopes are not identical to coupons, since they represent an entire product, not just a discount on a proposed purchase."). One objection to coupon settlements--typically, in effect, a discount on defendant's product --is that they force the class member to make an additional purchase to get any benefit from the settlement. See Synfuel, 463 F.3d at 654; Fleury v. Richemont N. Am., Inc., No. C-05-4525, 2008 WL 3287154, at *2 (N.D. Cal. Aug. 6, 2008). That is not the case here. A claimant in this settlement can receive a webinar free of charge, and need not transact any additional business with Gann.
I nevertheless find the policy behind the CAFA requirements to be suggestive and instructive. The policy that infuses CAFA is that the attorneys' fee award should be based on benefits actually claimed and recovered by the class. See In re Baby Products Antitrust Litig., 708 F.3d 163, 179 n. 13 (3d Cir. 2013) (CAFA " further supports the proposition that the actual benefit provided to the class is an important consideration when determining attorneys' fees"). That policy suggests that the better course here is to base the attorneys' fee award upon the webinars actually claimed, not on those made theoretically available.
2. The problem of " reversionary" funds
A second problem with class counsel's calculation of total settlement value is that the unclaimed portion of the webinar benefit, valued at $1, 831, 610, will effectively revert to Gann. That reversion of funds to the defendant creates a potential discrepancy--I mean the discrepancy between a big settlement and a big- sounding settlement. To collapse that discrepancy, settlements will typically provide that any unclaimed portion of settlement funds be distributed pro rata (or, failing that, paid into a cypres fund), for the direct or indirect benefit of the class. See, e.g., Ritchie v. Van Ru Credit Corp., No. 2:12-CV-01714-PHX-SM, 2014 WL 3955268, at *3 (D. Ariz. Aug. 13, 2014) (After deducting attorneys' fees, administration costs, and incentive payment from $2.3 million settlement fund, remainder to be divided pro rata among all class members who submitted a claim).
The $1, 145, 000 cash fund in this case does not present a reversion problem. The entire cash amount is earmarked for attorneys' fees, claims, and expenses, with the residual unclaimed value to be distributed to class members. No portion will revert to defendant Gann.
As to the webinar benefits, however, the situation is very different. The value of unclaimed webinars will not be distributed to class members (assuming such a thing would even be possible). Gann has not forever forfeited the $1, 881, 290 value of the webinars that it made available. Of that total, Gann will pay out a paltry $49, 680. The remaining value of $1, 831, 610 effectively reverts to (or remains with) Gann; it does not go to benefit the class. Approximately 60% of class counsel's $3 million " total settlement value, " on which its proposed fee is based, consists of the phantom value of webinars that will not be furnished to any class member, but retained by Gann.
Courts have cast a skeptical eye on settlement value that reverts to the defendant to the (very likely) extent that less than 100% of the class submits claims. For instance, in Strong v. BellSouth Telecommunications, Inc., 137 F.3d 844 (1998), the settlement provided that claimants could receive a credit on their telephone service bills. If every class member claimed the credit, the total value would be $64 million. Id. at 848. Based in part on this $64 million settlement value, counsel requested a fee totaling $6 million. Id. at 850. But not every class member claimed the credit, and the settlement provided that any funds left unclaimed would revert to the defendant. Id. at 852. Based on actual claims made, the credit produced a benefit to class members, not of $64 million, but only about $1.8 million. Id. at 851. Because the fee application was substantially based on value that would never be redeemed, the district court disapproved it, and the Court of Appeals upheld that decision. Id. The $64 million figure was a " phantom, " and it was not an abuse of discretion to instead consider the " actual results of the settlement." Id. at 852-53.
In Harris v. Vector Mktg. Corp., No. C-08-5198 EMC, 2011 WL 4831157 (N.D. Cal. Oct, 12, 2011), class counsel proposed a contingent fee award based on a total settlement value of approximately $13 million. Cash payments, however, went only to class members who filed a claim. Unclaimed funds would not be distributed to the class pro rata, but would instead revert to the defendants. 2011 WL 4831157 at *5. In the court's view, that $13 million " settlement value" was therefore " largely illusory, " and an attorney fee based on that illusory value was inherently flawed. Id. The Harris
court rejected the proposed settlement entirely. Id. at *7.
The Seventh Circuit made a similar observation in Pearson v. NBTY, Inc., No. 12-1245, 2014 WL
6466128 (7th Cir. Nov. 19, 2014). There, class counsel justified its proposed
fee in reference to a total settlement value of $20.2 million. That settlement
value, however, represented the defendant's obligation in the unlikely event
that every one of the 4.73 million class members submitted a claim. Such a
number, the Seventh Circuit held, had " barely any connection to the
settlement's value to the class." Id. at *2. A more appropriate measure of the settlement's value, said the court, would have to start from the amount the class members would actually receive. That actual, reality-based figure is the appropriate denominator for purposes of assessing the reasonableness of attorneys' fees.
These cases, too, argue against the propriety of basing an award on the portion of a class recovery that will actually revert to the defendant, rather than benefit the class.
3. The discretion of the court
More generally, I consider the fairness of what Class counsel propose with respect to the size of the fund and the number of persons benefited. I do not hold that reversionary funds may never be considered in any way. But I do examine whether including unredeemed funds results in a calculation of the total settlement value that is just and fair to the absent class members. In that connection, I consider the scope of the court's discretion under case law cited by Class counsel.
Class counsel have cited several cases for the proposition that a district court should use the total settlement value, irrespective of actual claims, in calculating a contingent fee. The cases do not apply here, for two reasons. First, this settlement differs in important respects from the settlements in the cited cases. Second, the cited cases establish, at best, that a court may consider reversionary funds--not that it must do so.
For example, in Boeing Co. v. Van Gemert, 444 U.S. 472, 100 S.Ct. 745, 62 L.Ed.2d 676 (1980) (Fitzgerald Brief, 41), the settlement fund was not reversionary. There, the defendant created a cash fund, from which attorneys' fees were deducted. Id. at 476. Claims were satisfied from the remainder of the fund. Id. There was no provision for unclaimed funds to revert to the defendant. See id. at 481 n.5 (" Nothing in the court's order made Boeing's liability for this amount contingent upon the presentation of individual claims."). See also Van Gemert v. Boeing Co., 590 F.2d 433, 436 (2d Cir. 1978) (Court of Appeals decision, further describing the settlement fund). In short, Boeing's liability was fixed, regardless of how many claims were ultimately filed. Boeing permitted a fee award based on the entire value of the fund. But the Court, as it explicitly recognized, did not face the issue presented here: Thus, we need not decide whether a class-action judgment that simply requires the defendant to give security against all potential claims would support a recovery of attorney's fees under the common-fund doctrine." Boeing, 444 U.S. at 481.
A Third Circuit case that class counsel cites, In re Baby Products Antitrust Litig., 708 F.3d 163, 175 (3d Cir. 2013), actually supports the approach I take here. There, the court considered in dictum whether amounts distributed cy pres should be considered part of the total settlement value in calculating a contingency fee. Id at 177-180. It imposed no per se rule: " We think it unwise to impose...a rule requiring district courts to discount attorneys' fees when a portion of an award will be distributed cy pres...We appreciate, however, that awarding attorneys' fees based on the entire settlement amount rather than individual distributions creates a potential conflict of interest between absent class members and their counsel." Id. at 178. Thus Baby Products is not contra authority, but an a fortiori case. That is, even where funds do not revert to defendant, but are applied to the indirect benefit of the class through a cy pres fund, it may be appropriate to exclude them from consideration in the total settlement value. Id. at 179 (" our approach is case by case, providing courts discretion to determine whether to decrease attorneys' fees where a portion of a fund will be distributed cy pres ").
Baby Products recognized that Boeing did not settle, either way, the permissibility of a fee based only on amounts actually distributed to the class. Id. at 177. It is clear, however, that the Boeing holding applies at best to the $1, 145 million cash fund, which does not revert to Gann under any circumstances. It has little to say about the unclaimed webinar benefits.
There is a case from this district that that based attorneys' fees (in part) on a total settlement value, despite a reversionary provision, but it is highly distinguishable. McCoy v. Health Net, Inc., 569 F.Supp.2d 448, 451 (D.N.J. 2008) (Hochberg, J.), involved allegations that a health insurer had underpaid health care providers for services. In some cases, patients were balance-billed for the difference between what the provider charged and what the insurer paid. Id. at 450-451. The McCoy settlement agreement, approved by Judge Hochberg, comprised four parts: a $15 million cash fund, a $160 million cash fund, a $40 million cash " prove-up" fund, and injunctive relief that the court valued at $26 million. Id. at 478. The first two funds, totaling $175 million, would be distributed to class members and would not revert to defendants. Id. at 453. The $40 million " prove-up" fund was reserved for future claims, with any leftover balance to revert to defendant.
In McCoy, the portion that could even potentially revert to defendant amounted to about 16% of the settlement value. See 569 F.Supp.2d at 452, 478. Because claims lay in the future, the amount if any, that would actually revert was unknown. Here, by contrast, approximately 62% ($1, 881, 290 out of $3, 026, 290) of the settlement value is potentially reversionary. And reserves for future claims are not an issue here, as they were in McCoy ; we now know the precise value of the benefit that will revert to Gann, which amounts to $1, 831, 610 of unclaimed webinars, or about 60% of the claimed total settlement value.
Class counsel cite two out-of-Circuit cases in which unclaimed funds that reverted to defendants were nevertheless included in the settlement value. Williams v. MGM-Pathe Commc'ns Co., 129 F.3d 1026 (9th Cir. 1997); Alleyne v Time Moving & Storage Inc., 264 F.R.D. 41 (2010). I am unconvinced by their reasoning. Each rested on the authority of prior decisions in which the unclaimed funds were distributed cy pres, not handed back to the defendant.
In short, precedent, where it does not directly dictate my reasoning here, makes it clear that the result I reach lies within my discretion.
* * *
It may be permissible or advisable in some cases to include some reversionary value in the total settlement value for purposes of assessing the reasonableness of an attorneys' fee award. But the circumstances of this case do not point me in that direction. Here, the ratio of fees to benefits is disproportionate. The impressive-sounding " total settlement value" of $3, 026, 290 includes $1, 831, 610 in unclaimed webinar benefits, the value of which will effectively revert to the defendant, not accrue to the class members. The true total settlement value is, at most, $1, 194, 680 (cash of $1, 145, 000 plus continuing education webinars worth $49, 680). Class counsel's proposed attorney fee of $1, 008, 763.33 represents, not 33%, but a whopping 84% of that true settlement value.
D. The proposed award to counsel compared to the actual aggregate benefit to the class.
I also consider Rite Aid factor number one (size of the fund created and the number of persons benefited) from the point of view of the actual aggregate distribution to the class.
The proposed settlement here will actually deliver a maximum of $180, 916.67 ($53, 625 cash distribution to claimants, plus $49, 680 worth of webinars to claimants, plus the residual $77, 611.67,  less administration costs, distributed to the non-claimants pro rata). When the value of the settlement is viewed in this manner, the ratio of attorneys' fees to class benefits is startlingly high. Class counsel seek a fee award of $1.08 million, a figure that comes to 5.5 times what the entire class will receive in cash and non-cash benefits.
Now attorneys' fees that exceed the class recovery are not per se unreasonable. See In re Baby Products Antitrust Litig., 708 F.3d 163, 178 (3d Cir. 2013) " [The appellant] also asks us to hold that fee awards exceeding the amount directly distributed to class members are presumptively unreasonable. For substantially similar reasons, we do not adopt such a rule."). But Baby Products suggests that a court should consider the benefit actually delivered to the class when considering an attorneys' fee proposal.
Other courts have explicitly rejected the theory of class counsel here that a fee may be based on a recovery that was theoretically available, but not actually paid. In Americana Art China Co. v. Foxfire Printing & Packaging, Inc., 743 F.3d 243 (7th Cir. 2014), discussed above, counsel proposed a fee of over $2 million, but the actual class recovery based on claims submitted was just under $400, 000. The district court had not relied on the discrepancy between the attorney fee and the actual recovery in reducing the attorney fee award, but the U.S. Court of Appeals for the Seventh Circuit explicitly stated that the district court would not have erred if it had done so. Id. at 246. A contingent fee award in a class action, the court said, is meant to simulate what the parties would have negotiated ex ante . While a district court should not rely exclusively on what was actually recovered, the court may consider actual recovery as part of its analysis. Id. at 247.
The Seventh Circuit again addressed the issue in Pearson v. NBTY, Inc., No. 12-1245, 2014 WL 6466128 (7th Cir. Nov. 19, 2014), in which the Court reemphasized the ratio of attorneys' fees to the total recovery. There, the district court had awarded attorneys' fees of $1.93 million. That amount might have been reasonable compared to the $20.2 million that the defendant theoretically made available for settlement. But it was not reasonable when compared to the $865, 284 of benefit actually paid
to the class. Id. at *2. Based on that imbalance, as well as other factors, the Seventh Circuit reversed the attorneys' fees award and vacated the entire settlement.
In Harris, supra, class counsel had proposed a fee of approximately $4 million, while the class was to receive a $1 million payout. 2011 WL
4831157 at *5. The requested fee award was 137.5% of the amount the attorneys
actually billed (that is, the lodestar multiplier was only 1.375). The Court
nevertheless rejected the settlement, in part because the attorneys were taking
the " lion's share--80 percent--of the total payout." Id. at *6. Here, the lodestar multiplier is 4.78, and the attorneys propose to take 84% of the true payout.
In approved TCPA settlements, the attorneys' fees have generally represented a much smaller portion of the amount paid out by defendants. In Grannan, 61.25% of the $1 million payout went to class members, while only 25% went toward attorneys' fees (the remaining amount covered costs). 2012 WL 216522 at *1. In Vandervort, at least 52% of the payout went either to the claimants or to a cy pres fund, with the attorneys' fees constituting (at most) 48% of the payout. 8 F.Supp.3d 1200, 2014 WL 1274049. See also Bellows, 2009 WL 35468 (attorneys' fees approximately 60% of the total payout); Lo, 2012 WL 1932283, at *1 and n.l (attorneys' fees represented 25% of the $49, 100 paid out); Ritchie, 2014 WL 3955268 at *3 (attorneys' fees represented nearly 40% of the $2.3 million paid out).
The fee that counsel suggests here would constitute about 84% of the $1, 194, 680 total payout to the class. Ex ante, no client would have negotiated an 84% contingency fee. Of course, we are viewing the matter ex post, with the benefit of knowledge of actual claims submitted. Nevertheless, experience teaches that the assumption underlying this proposed fee award--that 100% of the class would submit claims for webinar benefits--is unrealistic and would have been unrealistic at the time this settlement was negotiated. This proposed fee award is disproportionate to the benefit received by the class.
E. The benefit to each claimant and to the non-claimant class members
There is another side to the proportionality story, however, one that does support a fee representing a more modest multiplier of hourly billings., I also consider that the recovery to each claimant represents a high percentage of the maximum recovery available. In addition, some cash benefits flow, not just to claimants, but to substantially the entire ascertainable class. This discussion is relevant to Rite Aid factor one (size of the fund created and the number of persons benefited); to a lesser degree, it bears on factor two (reaction of the class to the settlement) and three (skill and efficiency of counsel).
TCPA imposes statutory damages of $500 for each unsolicited fax. See 47 U.S.C. § 227(b)(3). The 303 claimants here are each receiving a high percentage of what they could have recovered if they had litigated their claims individually. Under the cash portion of the settlement, each claimant is getting $125 per undocumented fax (for up to five faxes); and $175 per documented fax (for up to five faxes). (Fitzgerald Brief, 12-13). That amounts to either 25% or 35% of the statutory damages, with little or no effort or expense required. For each of the 216 claimants who claimed the non-cash webinar benefit (worth approximately $230), the recovery is even higher: equivalent to 71% of statutory damages per undocumented fax, and 81% per documented fax. (Fitzgerald Brief, 13). This might explain why (as Rite Aid factor two directs the court to consider) no class member objected to the settlement, and only one opted out. (Fitzgerald Brief, 42).
The recovery here is not out of line with class members' average recoveries in other TCPA class actions. See, e.g., Michel, 2014 WL 497031 at *18 (plaintiffs recovered $240 each, just less than half of the $500 to which they were entitled under the statute); Vandervort, 8 F.Supp.3d 1200, 2014 WL 1274049 at *2 (class members received between $175 and $275 for undocumented faxes, and $500 per fax received for documented faxes); Lo, 2012 WL 1932283 at *l-2 (claimants were paid $1, 331.23, representing 88.75% of the $1, 500 that each class member could have recovered for a willful violation); Ritchie, 2014 WL 3955268 at *3 (claimants would receive, on average, 95.83% of what they could have recovered under the statute).
That claimants will receive a substantial percentage of statutory damages is encouraging. That relatively high recovery per claimant, however, may not be wholly attributable to counsel's skill (contemplated by Rite Aid factor three). Of the 8, 181 class members (7, 769 of whom were successfully notified), 303 (or about 3.7%) submitted claims. (Fitzgerald Brief, 11, 12-13.). So a relatively small number of claimants stand to receive the per-fax cash benefit described above.
The settling parties were surely aware that the response rate was likely to be low. Common fund cases generally, and TCPA cases in particular, tend to yield low response rates. See, e.g., Michel, 2014 WL 497031, at *4 (2.7%); Rose, 2014 WL 4273358 at *5 (about 3.2%); Americana Art, 743 F.3d at 245 (7.3%); Vandervort 2014 8 F.Supp.3d 1200, WL 1274049 at 1205 (0.48%); Lo, 2012 WL 1932283, at*2 (10.84%); Ritchie v. Van Ru Credit Corp., No. 2:12-CV-01714, Plaintiff's Unopposed Motion for Final Approval of Class Action Settlement, No. 91 at 6 (10.62%). Thus the settling parties could reasonably have expected that the cash payout would not exhaust the $1, 145, 000 cash fund.
The backstop provision of this settlement, however, provides that any residual unclaimed cash in the $1, 145, 000 fund would nevertheless benefit the class. That residue is initially to be distributed pro rata to the large majority of the class who did not submit claims (or rather, to those for whom the administrator can locate a current address). So a low response rate does not inure to the benefit of the defendant or class counsel; leftover funds will go to class members. See Part III.G, infra .
Granted, the webinar benefit was theoretically available to every class member, and its $230 value would not be diluted by the number of claimants. The settlement provided, however, that the webinar benefit would be granted only to class members who specifically claimed it. And in fact only 216 class members did claim it, for a total value of just $49, 680. The webinar benefit, as opposed to the cash fund, will not benefit non-claimants.
Nevertheless, I conclude that the relatively high payout and the broad distribution of benefits favor some premium over counsel's hourly billings.
In contrast, the injunctive relief that the settlement provides is at best nominal, and does not argue for a fee larger than the attorneys' billing. Gann has agreed to refrain from sending any faxes that violate the TCPA. Such an injunction does not significantly alter the position of either the defendants or the class. Everyone is prohibited from sending faxes that violate the TCPA. The promise that class counsel have extracted from Gann is largely superfluous, except insofar as it is potentially enforceable by contempt. This is not, for example, an additional promise to refrain from contacting class members. Nor has Gann agreed to adopt new procedures for avoiding violations of the TCPA. Gann has simply agreed that it will not violate the law. The injunction thus does little to support an enhanced fee.
F. Remaining Rite
Aid factors: Reaction of class, Skill of attorneys, Complexity of litigation, Risk of nonpayment.
I deal more briefly with the remaining Rite Aid factors. I here discuss them more briefly, as they substantially overlap the Girsh factors already discussed at Part I, supra .
The second Rite Aid factor looks to the reaction of the class. As noted above, only 3.7% of the class made claims. No one objected to the terms of the settlement in general, or to the attorneys' fees in particular. This factor favors a fee in excess of hourly billing.
The third Rite Aid factor involves the skill and efficiency of the attorneys, The claim is not a particularly difficult one to establish. The class has, however, benefited from class counsel's experience in this kind of litigation. Counsel's hourly billings do not appear excessive. The settlement was reached without undue wrangling or dilatory proceedings. Class counsel (as well as defense counsel) have been efficient and professional. This factor, too, favors a fee in excess of hourly billing.
The fourth and fifth Rite Aid factors, the complexity and duration of the litigation and the risk of nonpayment, are interrelated. Viewed in one way, a TCPA case is fairly simple: the defendant's records of fax transmissions provide both the core proof of liability and the means of notifying the class. Damages, which are set by statute, do not involve the court in complicated factual questions or difficult issues of causation. One proof problem, though perhaps not an insurmountable one, might be the recipients' failure to retain the faxes. Others are referred to above at Part I ( Girsh factors four and five). The settlement was structured to circumvent these.
This case did, however, face significant issues of class action procedure, now resolved, that seemed to threaten its viability. Originally filed in state court, the case quickly ran afoul of a ruling barring TCPA class actions from the courts of New Jersey. In response, the plaintiffs moved to voluntarily dismiss the state case without prejudice so that they could refile it in federal court. Defendants opposed and appealed the voluntary dismissal, which was ultimately upheld. (Fitzgerald Brief, 4).
Plaintiff then refiled the case here in federal court. At first it was unclear whether New Jersey's bar on TCPA class actions would apply in federal court as well. (Fitzgerald Brief, 46). Several months after this federal action was filed, however, that issue was resolved in plaintiffs' favor by the United States Supreme Court in Mims v. Arrow Financial Services, LLC, 132 S.Ct. 740, 181 L.Ed.2d 881 (Jan. 18, 2012). Counsel may have benefited fortuitously from the timing of the Mims ruling. That does not detract from the reality that, at the time of filing, this class action was not a sure thing. That litigation risk will figure in my calculus.
Setting aside the risk of non-payment, I consider the delay in payment. The original action was filed in May 2011. Class counsel have invested a considerable (though not gargantuan) amount of time. They have also absorbed significant (though not ruinous) out-of-pocket expenses to the tune of $15, 599.19. (Fitzgerald Brief, 57). I take it they have not yet been paid anything. The time value of that delayed payment may justify an upward adjustment of the attorney's fee. See Bellows v. NCO Financial Systems, Inc., No. 07-cv-1413, 2009 WL 35468 at *5 (S.D. Cal. Jan. 5, 2009) ( citing Missouri v. Jenkins, 491 U.S. 274, 283-284, 109 S.Ct. 2463, 105 L.Ed.2d 229 (1989) (" [a]n adjustment for delay in payment is an appropriate factor in determining what constitutes a reasonable attorneys' fee under federal fee-shifting statutes").
All in all, I agree that the uncertainty of recovery, viewed from the standpoint of the time of filing, weighs in favor of an award of attorneys' fees somewhat higher than counsel's actual hourly billings.
G. Award of reasonable attorneys' fees
Weighing all of the considerations stated above, I have determined that an appropriate award of attorneys' fees is $421, 577.00. That corresponds to twice the amount of hourly billing, i.e., a lodestar multiplier of 2. Awarding counsel 200% of their actual billing is warranted given the result obtained, the difficulties that counsel faced, and the other factors stated above. For the reasons expressed above, however, the proposed award, which corresponds to a multiplier of 4.78, would not be reasonable. A multiplier of 2 is more proportionate to the true value of the settlement, and is in keeping with the multipliers ranging from .8 to 2.71 found in reported TCPA settlements.
I also consider the award of $421, 577.00 from the point of view of a contingent fee. That sum represents just 14% (rather than the proposed 33%) of the $3, 026, 290 settlement value calculated by class counsel. Even standing alone, that is within the realm of reasonableness; as noted above, a 33% contingent rate is high when compared to the rates of 15% to 28% approved by courts in other TCPA cases. But the real point is that the $3, 026, 290 settlement value is inflated. The true settlement value is closer to a maximum of $1, 194, 680. Class counsel's proposed fee of $1, 008, 763.33 would represent a very unreasonable 84% of that true value. My award of $421, 577, measured against the settlement's true value, corresponds to a contingent fee of approximately 35%, which is more than fair. The contingent percentage method and the lodestar method are accepted means of evaluating attorneys' fees. See Rite Aid, 396 F.3d at 300, 305 (explaining that the percentage recovery method is preferred in common fund cases, but recommending that courts nonetheless use the lodestar method as a " cross-check"). As explained, a fee of $421, 577 is reasonable under either.
Reduction of the proposed attorneys' fees will leave additional money in the cash fund. In accordance with the Settlement Agreement, that additional residue shall remain in the fund for the benefit of the class. The settlement provides that the residue of the cash fund is initially to be distributed pro rata among the non-claimant class members, up to a maximum of $125 per person. That residue will now be larger than the $77, 611.67 (less expenses) anticipated by class counsel, but the disposition will nevertheless proceed in the manner contemplated by the Settlement Agreement.
The revised calculation of the cash residue (rounded to the nearest dollar) is as follows:
$1, 145, 000 cash fund
- $ 53, 625 distributed to 303 claims made
- $ 5, 000 incentive award to named representative
- $ 421, 577 attorneys' fees
- $ 15.600 attorneys' expenses
= $ 649, 198 residue
After deduction of administrative expenses, that $649, 198 residue will be distributed to all class members who did not file a claim, if the administrator can obtain a valid address for them. That will amount to as many as 7, 466 persons. A pro rata distribution to all of them would amount to approximately $87 per person. Because that is well below the maximum of $125 (Settlement Agreement ¶ 8(a)(iii)), there is no need to consider the second tranche of distributions provided for in ¶ 10(e).
It appears that a maximum of about 7, 466 class members are eligible to receive a pro rata share of up to $125 from the residual amount ( i.e., the 7, 769 class members who were successfully notified, less the 303 class members who filed a claim). Settlement Agreement, ¶ 8(a) (iii). Assuming no expenses, and assuming addresses for all could be found, they would receive a maximum award of approximately $87 per__individual. That $87 award does not exceed the $125 maximum award under ¶ 8(a)(iii). Hence there will be no further distribution to all class members (including claimants) under ¶ 10(e) of the settlement agreement.
The terms of the Settlement Agreement and the incentive award will be approved as proposed, except that the attorneys' fee award is reduced to $421, 577. A separate order will issue.