United States: Seventh Circuit Ties Class Counsel's Recovery Of Attorneys' Fees To Amount Claimed By Class, In Context Of A Judgment

Last Updated: November 24 2017
Article by Kristen N. Hawes

On November 14, 2017, the Seventh Circuit issued its third opinion ending a class action that was almost a decade old. Holtzman v. Turza, No. 17-2330, 2017 WL 5450484 (7th Cir. Nov. 14, 2017).

The class action alleged that the defendant violated the Telephone Consumer Protection Act (TCPA), 47 U.S.C. § 227, by sending an "unsolicited facsimile advertisement" to the class. The district court certified the class of fax recipients in 2009, and later granted summary judgment in favor of the class, finding that the newsletter qualified as an unsolicited advertisement under the TCPA and ordering the defendant to pay $500 in statutory damages for each of the 8,430 faxes, totaling $4,215,000. The court stated it planned to distribute the sum to the class members and donate any remainder to a charity.

In 2013, the Seventh Circuit issued its first published decision upholding summary judgment, but vacating and remanding the district court's order regarding the distribution of unclaimed money to charity. Holtzman v. Turza, 728 F.3d 682 (7th Cir. 2013). On remand, the district court ordered that class counsel receive one-third of the judgment (about $1.4 million) as compensation for legal services, while the remaining two-thirds (or $333 per fax) would be distributed to each class member. If there were unclaimed settlement funds, there would be a second distribution to the class members, with the total maximum paid out per fax to be $500. Any remaining funds would be returned to the defendant if counsel received $1.4 million and all members who could be located received $500 per fax. The defendant appealed.

In its second and most notable opinion, the Seventh Circuit reversed, holding that the allocation was inconsistent in two ways with the American Rule on the allocation of fees – that litigants must cover their own legal costs. Holtzman v. Turza, 828 F.3d 606 (7th Cir. 2016), cert. denied, 137 S. Ct. 1330, 197 L. Ed. 2d 517 (2017). First, the distribution was inconsistent because the order essentially awarded counsel attorneys' fees even if a recipient could not be located or did not claim the funds. The Seventh Circuit noted that "awarding counsel $167 per fax when the class member gets nothing would be equivalent to treating the [TCPA] as a fee-shifting statute."

Next, the second round of distributions was held inconsistent with the American Rule because it would allow the class members to receive up to $500 per fax whereas the defendant would be required to pay separately for the class members' attorneys' fees. This would exceed the $500 statutory damages cap (absent a "willfull" or "knowing" violation) under the TCPA and would improperly shift the responsibility for those fees from the plaintiffs to the defendant.

The Seventh Circuit remanded the case with instructions that the $4.215 million be allocated as follows: (1) class members are to receive a check for $333 per fax; (2) for every $333 that is cashed, class counsel will receive $167; and (3) any remaining funds will be returned to the defendant. After another appeal, the Seventh Circuit affirmed the trial court's order regarding class notice on November 14, 2017, thus ending the decade-long litigation.

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.

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