“Unfair, unreasonable, and inadequate, and it cannot be approved” says the Honorable Edmond E. Chang, United States District Court Judge for Northern District of Illinois (Eastern Division) of a proposed settlement in a Telephone Consumer Protection Act (TCPA) class action case.

In the matter of Grok Lines, Inc., v. Paschall Truck Lines, (Case Number: 1:14-CV-08033) Plaintiff sought approval of a settlement agreement in the proposed class action lawsuit. Under the terms of the proposed settlement, the named Plaintiff, Grok Lines would get $1,500 and Grok Lines’ attorneys, Siprut PC., would get $98,500. The class members would get zero compensation. The class would only get injunctive relief in the form of promises from Paschall not to violate the TCPA and to take steps to avoid future violations

In an opinion filed on September 18, 2015 Judge Chang denied the motion for approval of the proposed settlement.

The facts in the case are not complicated. Grok Lines filed this class action through its attorneys, Siprut PC, alleging that Defendant Paschall had sent unsolicited junk-marketing faxes to Grok Lines and numerous other unwilling recipients. Transmitting unwanted advertisements by fax is unlawful under the TCPA, except in limited situations (for example, where a prior business relationship exists or the number was taken from a commercial directory of willing recipients).

One important fact emerged quickly: the size of the class (that is, the number of recipients of the Paschall fax) is about 180, all taken from a single list of fax numbers obtained from a third-party. The court pointed out that under the relevant statute the potential liability to the defendant would have been actual damages or a statutory damages amount of $500 for each violation.

Once the parties determined the size of the class and the potential exposure, settlement discussions began.  At some point, the parties agreed that Paschall would promise not to violate the TCPA again and to take steps to avoid TCPA violations—but no money would be paid to the class. The parties then negotiated, and agreed to the attorney’s fees and incentive award proposed to the court.

Under the specific terms of the proposed settlement:

1. “Paschall would be bound to comply generally with the TCPA and, more specifically, in case of any future faxes: to ‘take reasonable measures to verify that the recipient has expressly agreed to receive faxes’ and ‘first attempt to obtain written confirmation’; to ‘maintain a record or log’ of recipients who give only oral assent; to verify that, where Paschall uses a third-party to supply fax numbers, those recipients have given express consent; to verify that recipients of faxes who have an established business relationship with Paschall or whose fax numbers were obtained from a commercial database voluntarily gave their consent; to ensure that faxes contain information about how to opt-out of future faxes; and, to cease sending more faxes to those parties that do opt out.”
2. There would be no payment of money damages to any class members, other than an incentive award to Plaintiff Grok Lines.
3. Paschall would not oppose an application to the Court by Grok Lines for “an incentive award not to exceed $1,500.”
4. Paschall would be prohibited from opposing an agreed-upon payment of $98,500 to Siprut PC as class counsel to cover attorney’s fees, costs, and expenses.

In the opinion Judge Chang discussed the legal standards for approval of a class action settlement. He noted “no apparent concerns about the certification of the proposed class.” Instead, he focused on the fairness, reasonableness, and adequacy of the proposed settlement.

In denying approval of the settlement the judge wrote:

“Plaintiff’s counsel asks for approval of nearly $100,000 in attorney’s fees—the entirety of the settlement fund (except for $1,500 to Grok Lines itself), a significant part of which even defense counsel concedes could just as easily go to satisfying the monetary claims of class members—solely on the back of proposed injunctive relief that, on the record presented, offers no prospect of meaningful impact whatsoever on either the class members’ interests or Paschall’s future behavior.”

The complete opinion can be found here.

insideARM Perspective

This TCPA case does not involve a member of the ARM industry nor a credit grantor. It does not involve calls from an automated telephone dialing system (ATDS).  Still, the case is relevant to the industry.

The opinion is a fascinating discussion on the judicial approval process for a class action settlement. The court’s consideration of the reasonableness of the attorney fee request is particularly enlightening. The court focused on the need to strike the right balance between, on the one hand, “the legal services rendered on behalf of the class and, on the other, the interests of the class members.” In the end the court sent the parties back to the negotiating table to come up with a different settlement proposal – one that balances those two needs.