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Brown v. Ritas Water Ice Franchise Co. LLC

United States District Court, E.D. Pennsylvania

March 16, 2017

SHERRY BROWN and ERICKA NEWBY, on their own behalf and on behalf of all others similarly situated
v.
RITA'S WATER ICE FRANCHISE COMPANY LLC

          MEMORANDUM OPINION

          TIMOTHY J. SAVAGE, J.

         When counsel agree to the amount of an attorney fee award in a class action, it is tempting to sign off without conducting a thorough and comprehensive review of the request. Yet, the dynamics of the settlement process demand we resist the temptation. Defense counsel, eager to settle a case for a bottom-line figure, has no real interest in how that final payment is distributed among the class members and the attorneys. Class counsel's interest in maximizing compensation may collide with the interest of the class members who will receive insignificant or nominal sums. Thus, a court is obliged to conduct a full review of the fee request to ensure that the class is treated fairly and that the outcome of the case will achieve the goals of the statutory remedies without putting the interests of the attorneys over the interests of the class members.

         In this Telephone Consumer Protection Act class action, class counsel request one million dollars for attorney fees and expenses, one-third of the settlement fund, the maximum allowed under the Settlement Agreement. They also seek $5, 000 to each of the two class representatives.

         We shall grant the motion in part and deny it in part. We shall approve the requested expenses and class representative incentive awards. After conducting a rigorous assessment of the settlement and requested fees in light of the particular facts of this case, we shall reduce the proposed fee award and increase the size of the net fund available to the class members.

         Background

         On June 22, 2015, Sherry Brown filed a class action against Rita's Water Ice Franchise Company. The complaint alleged that Rita's knowingly or willfully sent her unauthorized, automated text messages in violation of the Telephone Consumer Protection Act (TCPA), 47 U.S.C. § 227.[1] The text messages, known as “Cool Alerts, ” announced when certain flavors of products such as water ice, custard, and ice cream became available in the recipient's local store. Brown alleged that the messages were generated using a list or database of telephone numbers which included numbers of persons who had not provided them to Rita's.[2] Brown claimed that she continued to receive Cool Alerts after she had repeatedly texted “STOP” in response to the texts' instructions and had emailed Rita's to stop.[3]

         Three weeks after Brown filed her action, Ericka Newby filed a similar class action against Rita's.[4] Like Brown, Newby claimed that she continued to receive Cool Alerts after she repeatedly texted “STOP” in response to the texts' instructions and contacted Rita's to stop.[5] Unlike Brown, Newby alleged that she had signed up to receive Cool Alerts on Rita's' website.[6]

         Rita's filed a motion to dismiss Brown's complaint or, in the alternative, to strike Brown's class claims.[7] Before we ruled on the motion, Newby voluntarily dismissed her complaint.[8] The next day, Brown amended her complaint to add Newby as plaintiff and the allegation that Rita's gave allegedly deficient online disclosures when signing up for Cool Alerts.[9]

         Following the pretrial conference, the parties agreed to mediate with a former magistrate judge.[10] At a second mediation session held on December 23, 2015, the parties reached a settlement framework.[11] They signed the Settlement Agreement on March 14, 2016.[12]

         On March 23, 2016, after a hearing, we granted preliminary approval of the settlement. We appointed Brown and Newby class representatives. Sergei Lemberg and Stephen F. Taylor, who represented Brown, and Steven L. Woodrow and Patrick H. Peluso, who represented Newby, were appointed class counsel.[13]

         The Settlement Agreement, which requires Rita's to fund a three-million-dollar settlement, allows class counsel to seek attorney fees and expenses up to one million dollars, one-third of the settlement fund.[14] It provides maximum class representative incentive awards of $5, 000 each for Brown and Newby.[15] The remainder of the fund “less Settlement Administration Costs” will be distributed to the class.[16] The net remainder will be divided into “Award Units.”[17] Class members will receive either one or eleven Award Units depending on whether they received another Cool Alert after responding “STOP” to a previous text. “Settlement Class Members who were sent a ‘Cool Alerts' text message and who file a Valid Claim Form, ” regardless whether they instructed Rita's to stop, will each receive one Award Unit.[18] “Settlement Class Members who received at least one ‘Cool Alerts' text message after texting stop in response to a previously ‘Cool Alerts' text message and who file a Valid Claim Form” will each receive ten additional Award Units, for a total of eleven Award Units.[19] The Settlement Agreement requires Rita's to pay out the entire three-million-dollar fund. Only uncashed checks will revert to Rita's.[20] The Agreement also requires Rita's to enhance disclosures by providing specific language on its Cool Alerts website.[21]

         The settlement fund administrator identified 110, 328 individual names and addresses of class members. Notices were mailed successfully to 106, 493 persons.[22]In response to the notices, 28, 523 class members filed valid claims, representing a claims rate of 25.9%, [23] almost double counsel's projected 13.8% claims rate.[24] Given this response, if counsel is awarded the full one million dollars, the 28, 137 claimants in the first group will each receive $56.81 and the 386 claimants in the second group will each receive $625.01.[25] When they negotiated the settlement figure, counsel anticipated the value of the individual claims at $90 and $1, 000, respectively.[26]

         From the three-million-dollar settlement fund, class counsel seeks one million dollars in attorney fees and expenses, and $10, 000 in class representative incentive awards, the maximums allowed under the Settlement Agreement. If counsel's request were approved, there would remain $1.84 million available for distribution to 28, 523 claimants.[27]

         At the final approval hearing, we requested counsel to submit detailed billing records for the purpose of conducting the lodestar cross-check. Brown and Newby filed a supplemental brief addressing attorney fees, expenses and incentive awards, which included the law firms' billing records.[28] We now consider the request for attorney fees.

         Attorney Fees

         Attorneys who create a settlement fund for class members are entitled to reasonable compensation from that fund. Boeing Co. v. Van Gemert, 444 U.S. 472, 478 (1980). In common fund cases, the percentage-of-recovery method is preferred over the lodestar method for assessing attorney fees. In re Ins. Brokerage Antitrust Litig., 579 F.3d 241, 280 (3d Cir. 2009); Third Circuit Task Force Report on Selection of Class Counsel, 74 Temp. L. Rev. 689, 775 (2001). The percentage method “allows courts to award fees from the fund in a manner that rewards counsel for success and penalizes it for failure.” Sullivan v. DB Invs., Inc., 667 F.3d 273, 330 (3d Cir. 2011) (quoting In re Rite Aid Corp. Sec. Litig., 396 F.3d 294, 300 (3d Cir. 2005)) (internal quotation marks omitted). It also serves to compensate attorneys who secured a benefit for the class. See In re Gen. Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 820 n.39 (3d Cir. 1995). It ensures that the class is not unjustly enriched at the expense of the attorneys.

         In determining the reasonableness of the percentage requested, we consider the Gunter and Prudential factors:

(1) the size of the fund created and the number of beneficiaries, (2) the presence or absence of substantial objections by members of the class to the settlement terms and/or fees requested by counsel, (3) the skill and efficiency of the attorneys involved, (4) the complexity and duration of the litigation, (5) the risk of nonpayment, (6) the amount of time devoted to the case by plaintiffs' counsel, (7) the awards in similar cases, . . . (8) the value of benefits attributable to the efforts of class counsel relative to the efforts of other groups, such as government agencies conducting investigations, (9) the percentage fee that would have been negotiated had the case been subject to a private contingent fee arrangement at the time counsel was retained, and (10) any innovative terms of settlement.

In re Diet Drugs, 582 F.3d 524, 541 (3d Cir. 2009) (citations omitted) (citing Gunter v. Ridgewood Energy Corp., 223 F.3d 190, 195 n.1 (3d Cir. 2000); and In re Prudential Ins. Co. of Am. Sales Practices Litig. Agent Actions, 148 F.3d 283, 336-40 (3d Cir. 1998)).

         Because each case is different, the non-exhaustive Gunter and Prudential factors are not applied in a formulaic manner. The factors must each be evaluated separately and then collectively to determine a reasonable fee reflecting the particular circumstances of the case. Depending on the facts of the case, one factor may have more significance and relevance than others. Gunter, 223 F.3d at 195 n.1. The factors may overlap and the analysis of one may also be relevant analyzing others.

         Even when the percentage method is used, the lodestar method still plays a role in the reasonableness analysis. It serves as a cross-check in common fund cases. Sullivan, 667 F.3d at 330; see also Prudential, 148 F.3d at 333. It does not “trump” the percentage method. Rite Aid, 396 F.3d at 306; see also Task Force Report, 74 Temp. L. Rev. at 776. Because the lodestar method is only a cross-check, the court may use an abridged lodestar analysis. Ins. Brokerage, 579 F.3d at 280; see also Task Force Report, 74 Temp. L. Rev. at 776-77. At the same time, in cross-checking, the court must be vigilant of “the potential for manipulation of the lodestar.” Ins. Brokerage, 579 F.3d at 284; see also Task Force Report, 74 Temp. L. Rev. at 777.

         After determining the lodestar, we calculate the “multiplier” by dividing the proposed fee award by the resulting lodestar. Ins. Brokerage, 579 F.3d at 280. The multiplier “attempts to account for the contingent nature or risk involved in a particular case and the quality of the attorneys' work.” Id. (quoting Rite Aid, 396 F.3d at 306). The multiplier need not fall within a particular range. Rite Aid, 396 F.3d at 307. What is reasonable in one case may not be reasonable in another case.

         Because the settlement provides for a common fund, we apply the percentage method and evaluate the reasonableness of the proposed one-third award using the Gunter and Prudential factors. Then, we perform the lodestar cross-check.

         Size of Fund and Number of Beneficiaries

         The size of the settlement fund is not extraordinary. Nor is the benefit to individual claimants.

         Counsel did achieve a modest benefit for the class. Class members will receive cash awards, not coupons. Cash settlements are generally valued higher than coupons for class members. See, e.g., Gen. Motors, 55 F.3d at 807. Counsel deserves credit for pressing for cash payments.

         In addition, counsel negotiated benefits not only for persons who received Cool Alerts after unsuccessfully attempting to unsubscribe, but also the larger group of persons who received Cool Alerts and had not attempted to unsubscribe.[29] For the larger group, the claims would have been more difficult to prove. Rita's had a possible consent defense because those in the larger group had signed up to receive Cool Alerts and had not attempted to unsubscribe. See 47 U.S.C. § 227(b)(1)(A) (“It shall be unlawful . . . to make any call (other than a call . . . made with the prior express consent of the called party . . . .”) (emphasis added).[30] To their credit, counsel successfully included these individuals in the class and negotiated a cash settlement for them.

         The amount each class-member claimant will receive is not significant, but rather modest. Because the number of claimants exceeded counsel's estimates, each claimant will receive less than anticipated. Class counsel had initially projected a 13.8% claims rate.[31] Ultimately, 28, 523 class members filed claims, [32] representing a claims rate of 25.9% of the class. Consequently, the claimants will receive much less than had been anticipated when the parties negotiated the settlement.[33]

         Each claimant's potential recovery decreased from an estimated $90 to $56.81 and from $1, 000 to $625.01, respectively. Yet, despite seeking approval of a settlement that will net less to each claimant than was expected, counsel does not propose reducing the attorney fees to bring the claimants' shares closer to the range counsel had estimated when they struck the Settlement Agreement.

         Counsel claim that they extracted the largest settlement possible for the class in light of Rita's' ability to pay.[34] Yet, rather than adjust the attorney fees to increase the amount available to the class, counsel propose a lesser recovery for the class members.

         In summary, counsel obtained a successful, but not an extraordinary, result for the class. The size of the fund created is not large. The number of persons benefited is neither significant nor insignificant. Thus, we conclude that this factor favors an award of fees that is not extraordinary and reflects a reasonable relationship to the individual awards to the claimants.

         Objections by Class Members

         Two class members objected to the settlement.[35] Only one objected to the attorney fees, stating, “The attorney fees in this case are too high and will take too much of the consumer's money and most consumers do not realize there is a settlement.”[36]

         Two objections out of 110, 328 class members with 28, 523 claimants are negligible. Yet, the objection to the attorney fees has some validity. Only about a quarter of the class members have filed claims. Those who did not file a claim may not have done so because, given the small amount of the recovery, it was not worth the effort to pursue a claim. Those who did file claims may not have been motivated to take the extra step to object to the attorney fees. A class member could file a claim by submitting a simple form online or through the mail. A class member could object only by drafting her own detailed objection addressing eleven specifications, including “the complete legal and factual bases for the Objection.”[37]

         Even though the absence of many objections mitigates against a reduction of the fee, we must still conduct a “robust assessment” of the proposed attorney fees. Otherwise, we would avoid our responsibility to scrutinize the settlement in light of the relationship of the parties and class counsel.

         This is not a case where there are class members who stand to get substantial sums and the attorneys are seeking unusually disproportionate fees. The motivation for class members to object is not strong. Nevertheless, the absence of substantial objections weighs against a reduction of the proposed fee.

         Skill and Efficiency of Attorneys

         The percentage method rewards counsel for success and penalizes them for failure. Sullivan, 667 F.3d at 330 (quoting Rite Aid, 396 F.3d at 300). Accordingly, “one purpose of the percentage method is to encourage early settlements by not penalizing efficient counsel.” Fed. Judicial Ctr., Manual for Complex Litigation (Fourth) § 14.121, at 193 (2004); see also Gunter, 223 F.3d at 198 (quoting prior edition of the Manual for Complex Litigation). The lodestar method, by contrast, creates an incentive for counsel to prolong litigation to bill more hours. Task Force Report, 74 Temp. L. Rev. at 706; Manual for Complex Litigation, supra, § 14.121, at 188. In considering the skill and efficiency factor, we seek to reward, not punish, efficient counsel.

         Once Brown's complaint was amended to add Newby as a plaintiff and include her claims, Woodrow, Peluso, and a fifth attorney, Stefan Coleman, entered appearances in the case.[38] Even had they not done so, both actions would have been consolidated. In that event, counsel would have had to cooperate in the litigation and duplicative tasks would not have been rewarded by higher fee awards.

         We credit counsel for efficiently merging both cases. Counsel should not be discouraged from doing what counsel did. Yet, once they did so, counsel should have taken advantage of the merger. Instead, perhaps to protect their respective fee interest, both firms remained in the case and performed unnecessarily duplicative work.

         Counsel had the opportunity to maximize efficiency. But, they did not. Instead, both law firms participated in almost every phase of the litigation.[39] Although they performed some separate tasks, they engaged in redundant work.

         Counsel from each firm spent time performing duplicate work.[40] For example, four attorneys, two from each firm, attended the two mediation sessions.[41] Counsel at both firms spent 63.9 total hours analyzing the same financial documents which their financial expert had already analyzed.[42]

         In addition to duplicative work, counsel also billed time for matters irrelevant to litigating the case. They billed 78 hours for travel without claiming they performed work on this case during travel.[43] Unlike their entries for non-travel time, the travel time did not describe any work performed while traveling. If counsel did actually work during travel, the additional amount of time reflects negatively on counsel's skill and experience. They also billed 13.6 hours for reviewing bills and paying costs, an administrative chore that could have and should have been done by office staff.[44]

         Counsel spent time on irrelevant and unnecessary work. They recorded 6.9 hours researching a “custard crisis” to investigate whether the price of eggs affected Rita's' ability to pay a settlement.[45] They spent 27.5 hours researching company officers in their individual capacities, franchisees, and competitors.[46] They claim 15.3 hours researching and drafting a response in opposition to Rita's' request to the Federal Communications Commission to retroactively waive their TCPA liability under FCC regulations. They never sent the letter.[47] These activities were unnecessary.

         Inexplicably, counsel spent 47.6 hours researching mediator ethics and alleged ethical violations by the mediator.[48] Yet, in their motion, counsel praise the mediator for her “help and encouragement”[49] and assisting the parties in reaching a settlement framework.[50] Not only was this a waste of time and unsupported, it militates against a finding of skill and efficiency. If there had been a problem, the parties were not compelled to mediate the case and were free to terminate the mediation or seek another mediator. It remains a mystery why counsel wasted so much time on this question of the conduct of a mediator they praise.

         As we noted, the lodestar analysis, abbreviated as it may be, is a cross-check. Yet, reviewing billing entries is also helpful in assessing counsel's skill and efficiency. The documentation offered to support the lodestar amount reflects the time spent on various tasks and the need for certain tasks. In this case, consistent with our obligation to safeguard the interests of the class through a rigorous assessment of the settlement and the proposed fees, we have reviewed counsel's billing records to inform our analysis of the skill and efficiency factor. See Sullivan, 667 F.3d at 329; In re Cendant Corp. PRIDES Litig., 243 F.3d 722, 730 (3d Cir. 2001).

         Counsel needlessly duplicated tasks and wasted time on work that was not legally or factually relevant. It is doubtful that the result would have been any different if the case had been prosecuted by one firm rather than two. The redundant work and the time needlessly spent on issues unnecessary to accomplish the result suggest that counsel were not as skilled as they profess to be, were inefficient, or both.

         Complexity and Duration of the Litigation

         This case was not complex. It was simple and was resolved quickly. Settlement discussions began early without engaging in extensive discovery. Counsel reached a settlement framework within six months of filing the complaint after two mediation sessions.

         Liability is not difficult to establish in a TCPA case like this one. Proving a statutory violation is easy. The plaintiff need only prove that the defendant made a call, without the plaintiff's consent, within the United States (other than a call made for emergency purposes or made with the prior express consent of the called party), using an automatic telephone dialing system to any telephone number assigned to a cellular telephone service. 47 U.S.C. § 227(b)(1)(A)(iii). Brown and Newby included copies of text messages on their cell phones, including their “STOP” responses, [51] from Rita's in their complaint.[52] The only fact that had to be proven was that Rita's used an automatic telephone dialing system to send the text. See Dominguez v. Yahoo, Inc., 629 F. App'x 369 (3d Cir. 2015). Thus, there was no need for extensive discovery.

         TCPA litigation is neither challenging nor complex. The simplicity of these cases suggests that a one-third fee may not be appropriate. As one district court concluded, one-third fee awards in TCPA cases are not justified “in light of the repetitive nature of these actions and considering the amount of work actually performed by Counsel in relation to the settlements and/or judgments that have been obtained in other cases.” Machesney v. Lar-Bev of Howell, Inc., 292 F.R.D. 412, 425 (E.D. Mich. 2013), on reconsideration, No. 10-10085, 2016 WL 1394648 (E.D. Mich. Apr. 7, 2016); see also Hawk Valley, Inc. v. Taylor, 301 F.R.D. 169, 184 (E.D. Pa. 2014) (citing Machesney, 292 F.R.D. at 425). The Machesney court noted, “Because cases like those pending before the undersigned are so similar, and Counsel have litigated so many of them, Counsel is able to recycle the same pleadings, discovery, research, motions, etc. in these cases.” Machesney, 292 F.R.D. at 425 n.8.[53]

         Brown's initial complaint suggests the use of a recycled form. After referring to Brown with female pronouns throughout, the complaint states, “Neither Plaintiff nor his counsel has any interests which might cause them not to vigorously pursue this action.”[54]

         The lack of complexity and the short duration of the litigation weigh against a one-third fee award. At the same time, we do not punish counsel ...


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