United States District Court, D. New Jersey
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 ...