Case May Suggest Drafting Tips For Class Counsel But Might Signal A More Ominous Trend, Although Facts Limited To Quick Settlement Achieved After A “Paucity Of Effort.”
Although a federal case, class action practitioners involving smaller settlements resultant from little work may need to pay attention to the reasoning of Camp Drug Store, Inc. v. Cochran Wholesale Pharmaceutical, Inc., No. 17-2086 (7th Cir. July 27, 2018), which suggests that a common fund might be somewhat of a “flexible” term depending on the results achieved and that using language such as “up to” for a potential common fund may present a basis to award reduced fees to class counsel, especially in the case of a quick settlement with a small expenditure of effort by class counsel.
In this one, a class and defendant settled a Telephone Consumer Protection Act (TCPA) class action, relating to faxing unsolicited advertisements to class members, for “up to $700,000 available to settle the case,” subject to class members submitting a claim for $125 (with a pro-rata reduction if the claims exceeded the $700,000 ceiling), along with any unclaimed funds reverting to the defense, with an incentive award of $15,000 each to representative plaintiffs, and with class counsel to be paid one-third of the $700,000 settlement fund to the tune of $233,333.33 (with the actual lodestar being a claimed $156,000). The district judge was concerned with this settlement, but preliminarily approved the settlement. The settlement administrator garnered 1,765 class member returned claim forms out of a 17,000 member potential class, with no one filing objections and only 12 class members requesting to be excluded—in total, the total amount of funds that defendant paid to claimants was $220,625. At the final approval hearing, the district judge awarded $ 1,000 as an incentive award to the named plaintiffs and awarded $73,468.13 in fees to class counsel, with the fee award being one-third of the returned claims. The district judge did not feel there was a true common fund given the reversion and no guaranty that the “up to” $700,000 commitment was anything more than a security deposit.
The Seventh Circuit affirmed the fees award, much to the chagrin of class counsel.
The appellate court did not believe that a true common fund was involved based on the “up to” language in the settlement agreement (not a sum certain); rather, it was a “claims-made” settlement where funds should be gauged against what claims were actually returned. It distinguished Boeing Co. v. Van Gemert, 444 U.S. 472 (1980) on this basis, but then went further. Boeing does not dictate a percentage-of-recovery approach from a common fund because the fee award must still be reasonable. The problem here was that there was no real litigation in the case—no paper discovery; no depositions; no substantive motion, just an early settlement after the filing of a complaint. The “paucity of effort” expended by class counsel justified the district judge award, which is a key distinction we believe pro-class practitioners will embrace in the future but also highlights that fees, in the end, must be reasonable.