Seyfarth Synopsis: In what is being billed as the “largest and strongest TCPA settlement in history,” Judge Kennelly of the U.S. District Court for the Northern District of Illinois recently granted Plaintiffs’ counsel a minimum of $15.26 million in attorneys’ fees. However, the Court refused to depart from the “sliding-scale structure,” which has become the standard model in the Seventh Circuit for awarding fees in class actions, and declined to award Plaintiffs’ counsel one-third of the common fund (or $24.5 million) as requested.

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Employers who utilize automated calls and text messages as part and parcel of their business continue to be subject to a considerable risk of class actions under the Telephone Consumer Protection Act (“TCPA”). This is in no small part a product of the fact that TCPA class actions continue to be extremely lucrative for the plaintiffs’ class action bar. The Court’s recent award of at least $15.26 million in attorneys’ fees in Aranda et al. v. Caribbean Cruise Line, Inc. et al., No. 12-04069, 2017 U.S. Dist. LEXIS 52645 (N.D. Ill., April 6, 2017), serves as the most recent example of the lucrative success that plaintiffs’ attorneys continue to achieve in TCPA class actions.

Case Background

In Aranda, Plaintiffs alleged that Defendants violated the TCPA by placing millions of automated telephone calls to consumers without their consent. After roughly four years of “hotly contested litigation,” the parties settled on the eve of trial and the settlement provides that defendants will establish a common fund, in an amount no lower than $56 million and no higher than $75 million, from which class members will be paid. Id. *3. Following final approval of the class-wide settlement, Plaintiffs’ counsel petitioned for an award of attorneys’ fees in amount equal to one-third of the final common fund total.

The Court’s Decision

Judge Kennelly of the U.S. District Court for the Northern District of Illinois granted in part the fee request of Plaintiffs’ counsel, noting that while the circumstances of the case warranted a higher fee award than those granted in other TCPA class actions, the Court disagreed that the award should be as high as requested and declined to depart from the “sliding-scale structure” used by courts in the Seventh Circuit to award attorney’s fees in class actions. Id.

The main question addressed by the Court was whether the fee request should be granted based on Plaintiffs counsel’s proposed “flat-percentage” approach or the “sliding scale” model that district courts in the Seventh Circuit often use to award attorneys’ fees for class action settlements as outlined in In Re Synthroid Marketing Litigation, 264 F.3d 712, 721 (7th Cir. 2001). Id. *4. The “sliding scale” model consists of breaking class action settlement funds into tiers or bands and awards class counsel a decreasing percentage of each band. The rationale behind this approach is that “awarding class counsel a decreasing percentage of the higher tiers of recovery enables them to recover the principal costs of litigation from the first bands of the award, while allowing the clients to reap more of the benefit at the margin yet still preserving some incentive for lawyers to strive for these higher awards.” Id. at *11 (quoting Silverman v. Motorola Sols., Inc., 739 F.3d 956, 959 (7th Cir. 2013)). Plaintiffs’ counsel argued that an award amounting to one-third of the net common fund accurately reflected the result of a hypothetical negotiation between the plaintiffs and their attorneys under a “market based approach,” citing their typical contingency fees in TCPA cases, an expert indicating that the request was less than a standard rate for individual TCPA cases, and argued that they generated better-than-average value for the class and should be paid accordingly. Id. *6-7.

The Court agreed with Plaintiffs that the circumstances of the case warranted a higher fee than those granted in other TCPA class actions that resulted in settlement. Id. *14. However, the Court did not agree that the case was not one in which “declining marginal percentages are [not] always best” and therefore, this concern would not provide a reason for class members to deviate from the sliding-scale structure in an ex ante negotiation. Id. *12. Specifically, counsel would have had the same or virtually the same incentive to fight for a high award whether they were receiving a flat rate or a sliding-scale rate because up until the very end, class counsel were fighting to get any recovery for the class. Id. *16 The Court also disagreed with Plaintiffs that class members would accept a flat rate because of its low inherent value or because of the possibility that counsel could generate a high recovery through aggressive litigation because it was “not clear that the hypothetical class members in this case would be faced with the binary choice between a high-percentage fee with a large recovery, on the one hand, and a sliding-scale fee for a small recovery, on the other.” Id. *17.

Despite this, the Court was “persuaded that plaintiffs and their counsel faced materially greater risks in this case than those faced in the other recent TCPA class actions” and therefore, added at least a 6% premium to the first “band” of recovery on the sliding scale. Id. *25. Ultimately, the Court also concluded that counsel’s efforts justified increasing the size of the settlement and therefore, plaintiffs in a hypothetical negotiation might agree to pay a risk premium at each band, but also insist that the size of the premium decrease at each band, as the risk of non-recovery decreased. Id. *27-28. Therefore, the Court awarded class counsel 36% of the first $10 million ($3.5 million), 30% of the second $10 million ($3.5 million), 24% of the band from $20 million to $56 million ($8.64 million), and 18% of the remainder. If the common fund reaches its $76 million ceiling, the Court will adjust the award up, in which case the award would amount to roughly 25.6% of the common fund which is slightly higher than the mean and median recoveries for TCPA cases of similar value. Id. *30-31.

Implications For Employers

This ruling illustrates that TCPA class actions are alive and well – and most notably – continue to be extremely lucrative for the plaintiffs bar. Employers should ensure that they are in compliance with the TCPA or else risk becoming a target of TCPA litigation.