In Holzman v. Turza, Nos. 15-2164 & 15-2256, 2016 U.S. App. LEXIS 12594 (7th Cir. July 8, 2016), the Seventh Circuit reversed an order that could have resulted in individual payments of $500 per violation plus attorneys’ fees, i.e., more than the $500 in statutory damages for which the statute provides.

After the plaintiff prevailed on the merits, the trial court directed the defendant to deposit $4.215 million into court, which represented the $500 in statutory damages for each of the 8,430 faxes at issue. It then ordered that one third of the $4.215 million be used to pay class counsel and that two-thirds of the $4.215 million be used to pay class members. Id. at *3. Class members would be sent a check in the amount of $333 per fax, i.e., two thirds of $500. If, however, a check was uncashed or undeliverable, class members who had cashed their checks would receive a second distribution of up to $167 (i.e., so that their total recovery could, in theory, reach $500 per fax). Id. If any funds remained after that second distribution, then, and only then would they revert to the defendant. Id.

The defendant took an appeal and argued that the trial court’s order was inconsistent with the American Rule, which, in the absence of a fee-shifting statute or a common fund, requires that each plaintiff pay his or her own fees from his or own recovery. The Seventh Circuit agreed and reversed. Judge Easterbrook’s opinion explained that the Seventh Circuit’s prior decision in the case had held that this action “stems from discrete injuries suffered by each recipient of the faxes; it does not create a common fund.” Holzman v. Turza, 728 F.3d 682, 688 (7th Cir. 2013). In other words, “suits under the Telephone Consumer Protection Act seek recovery for discrete wrongs to the recipients” and does not result in “a genuine common fund.” Holzman, 2016 U.S. App. LEXIS 12594 at *2–3. Judge Easterbrook explained as follows:

If all class members claim their awards, this will make no difference. Under the American Rule for the allocation of attorneys’ fees, litigants must cover their own legal costs. (The Telephone Consumer Protection Act is not a fee-shifting statute.) So the members of the plaintiff class must pay their lawyers, and none of the class members has appeared to contend that a third of the recovery is an excessive fee. This means that, of each $500 in damages for a given fax, counsel are entitled to about $167, and the fax recipient gets the rest. But if a given recipient cannot be located, or spurns the money, counsel are not entitled to be paid for that fax. The district judge held that Turza gets the money back, and awarding counsel $167 per fax when the class member gets nothing would be equivalent to treating the Act as a fee-shifting statute and requiring Turza to pay the class’s attorneys just because he lost the suit.

Id. at *3-4. As a result, paying a class member $500 and requiring a defendant to separately pay for the plaintiff’s fair share of attorneys’ fees would exceed the $500 statutory damages cap and would improperly shift responsibility for those fees from the plaintiff to the defendant:

The district judge ordered a second round of distributions, so that a class member could receive as much as $500 per fax (if some class members could not be located or did not cash their checks). But that second round of distribution would be inconsistent with the American Rule on the allocation of legal fees. The statute authorizes a maximum award of $500 per fax, out of which counsel must be paid. Given the district court’s conclusion that Turza is entitled to the return of the excess in the fund …, distributing more than $500 per fax ($333 to the recipient and $167 to counsel) would either exceed the statutory cap or effectively shift the class’s legal fees to Turza.

Id. at *4.

The Seventh Circuit then remanded the case with instructions that the trial court issue an order that allocates the $4.215 million in a manner consistent with its opinion. That would mean that: (1) class members would be sent a check in the amount of $333 per fax; (2) for every $333 that is cashed, class counsel would receive $167; and (3) any remaining funds would revert to the defendant. The decision is not only a significant victory for the defendant but also a helpful roadmap for how litigants could structure the settlement of similar suits.