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Camp Drug Store, Inc. v. Cochran Wholesale Pharmaceutical, Inc.

United States Court of Appeals, Seventh Circuit

July 27, 2018

Camp Drug Store, Incorporated, Plaintiff-Appellant,
v.
Cochran Wholesale Pharmaceutical, Incorporated, Defendant-Appellee.

          Argued November 9, 2017

          Appeal from the United States District Court for the Southern District of Illinois. No. 3:16-cv-00488-SMY-RJD - Staci M. Yandle, Judge.

          Before Ripple, Manion, and Sykes, Circuit Judges.

          Ripple, Circuit Judge.

         Camp Drug Store, Inc., filed this action, on its own behalf and as a representative of a proposed class, against Cochran Wholesale Pharmaceutical, Inc. ("Cochran"). Camp Drug Store alleged that Cochran had violated the Telephone Consumer Protection Act ("TCPA" or "the Act"), 47 U.S.C. § 227, by faxing unsolicited advertisements to the class members. The parties entered into early mediation and reached a settlement. The district court approved the settlement on behalf of the class, but reduced the proposed attorney fee and incentive awards.

         Camp Drug Store appeals. It maintains that the settlement created a common fund against which the reasonableness of the attorney fee award should be assessed. It also notes that the proposed incentive awards were commensurate with other awards to named plaintiffs for claims under the TCPA.

         We cannot accept Camp Drug Store's characterization of the settlement as a common fund. Neither our case law, nor that of the Supreme Court, supports that characterization. Moreover, given the early stage at which this litigation was settled, the reductions in the attorney fee and incentive awards were not an abuse of discretion. We therefore affirm the district court's judgment.

         I

         BACKGROUND

         Cochran, a small pharmaceutical distribution company in Monroe, Georgia, obtained a list of approximately 17, 000 pharmacies. Using the list, it then sent faxes to prospective customers. It did not have permission from those to whom it sent faxes. Camp Drug Store was one of the recipients of the faxes and brought this class action under the TCPA, 47 U.S.C. § 227. Section 227(b)(1)(C) of Title 47 generally prohibits the sending of unsolicited advertisements by facsimile. Its complaint was filed on May 2, 2016.

         Before an answer was filed, the parties moved to stay the litigation for ninety days to explore settlement. In mid-October, the parties engaged in mediation, which produced a proposed settlement. According to the agreement, Cochran would "make up to $700, 000.00 available to settle" the case, but was not required to create a separate account to hold the funds or to deposit them with the court.[1] Each class member could submit a claim for $125; if the dollar value of the claims exceeded the total available funds, each timely claim would be subject to a pro-rata reduction. Any funds that were not claimed by class members were to be kept by Cochran. The agreement further provided that each of the representative plaintiffs[2] was entitled to an incentive award of $15, 000, and class counsel were to be paid "one third of the Settlement Fund ($233, 333.33)."[3]

         On December 7, 2016, the district court held a hearing to consider the preliminary approval of the settlement. At the outset, the court advised the parties that it had concerns about some aspects of the proposed settlement: the early stage of the litigation and the amount of work that had been done compared to the amount of attorneys' fees; the reversion of funds to the defendant; and the means and timeline for notification.[4]The court explored each of these topics during the hearing. Specifically, counsel advised the court that no formal discovery had occurred, but that, in anticipation of mediation, Cochran had provided plaintiffs' counsel with its financials and a list of businesses to which it likely had faxed information. Counsel also informed the court that the action represented an uninsured risk to Cochran, a small family business. Finally, counsel clarified for the court that the settlement agreement did not guarantee plaintiffs' counsel one-third of the available funds; it simply allowed plaintiffs' counsel to petition the court for "up to one-third of 700[, 000]."[5]

         After discussing these issues with counsel, the district court formally appointed counsel and representatives for the class, elongated the time frame for notice and response, and preliminarily approved the settlement agreement. The court directed that plaintiffs' counsel file a motion for final approval by March 20, 2017, and scheduled a final hearing for April 19, 2017.

         The settlement administrator sent the notice of the proposed settlement and the claim form to all class members, initially by fax and, if the fax was unsuccessful, by mail. Of the approximately 17, 000 potential class members, 1, 765 class members returned claim forms. No class members filed objections, and only twelve class members requested to be excluded from the settlement. The total amount of funds that Cochran paid to claimants was $220, 625.00.

         The plaintiffs subsequently filed a motion for final approval of the class settlement. According to the plaintiffs, the settlement was "fair, reasonable, and adequate," as required by Federal Rule of Civil Procedure 23(e)(2). With respect to fees, the plaintiffs requested that class counsel be awarded one-third of the $700, 000 ($233, 333.33) that had been made available for the settlement of the claims, as well as an additional $30, 000 in out-of-pocket expenses attributable to mediation fees, costs of notice, and settlement administration. In support of this award, the plaintiffs noted that "[w]hen a class suit produces a fund for the class, it is commonplace to award the lawyers for the class a percentage of the fund."[6] "Here," the plaintiffs continued, "the Settlement created a common fund by agreement of the parties."[7] Consequently, the plaintiffs maintained that one-third of the settlement fund was an appropriate fee award.

         The court considered the propriety of the final settlement at a hearing held on April 19, 2017. It evaluated the settlement against each of the factors set forth in Isby v. Bayh, 75 F.3d 1191, 1199 (7th Cir. 1996), namely:

the strength of plaintiffs' case compared to the amount of defendants' settlement offer[;] an assessment of the likely complexity, length and expense of the litigation[;] an evaluation of the amount of opposition to settlement among affected parties[;] the opinion of competent counsel[;] and the stage of the proceedings and the amount of discovery completed at the time of settlement.

         As it had in the preliminary hearing, the court expressed concerns about the requested attorneys' fees "[i]n terms of the stage of the proceedings and the amount of discovery."[8] The court observed that "there was no real litigation in this case. The case was filed. Counsel entered their appearance. They requested a stay. They began negotiations … . The case was stayed and then they announced a settlement."[9]

         The court also was not persuaded that the $700, 000 represented a common fund that inured to the benefit of the class. Instead, the court explained that "it was a security deposit."[10]The court stated that it would have agreed with the plaintiffs' argument "if the defendant plopped down $700, 000 and sa[id], This is it, now you can divvy this up with claims, attorneys' fees, costs, however you want to do it, but this is it."[11] However, the settlement required reversion back to Cochran of any unclaimed amounts. The court, therefore, determined that it was more appropriate to award counsel thirty-three percent of the amount recovered by the class, or $73, 000. In the court's view, even this amount was a "windfall" given the early stage of litigation at which the case had settled.[12]

         The court also was not convinced by counsel's argument that the fee award should be higher because "the actual Lodestar in this case was $156, 000."[13] The court rejected this argument because, although the lodestar can be an appropriate cross-check, counsel had provided only a summary of the number of hours spent on the case; counsel had not provided details or documentation regarding how the $156, 000 in fees had accumulated given how little work was done on the case.[14]

         With respect to the incentive award, the court noted that there were certain factors that it had to consider, including: "The actions that the plaintiffs have taken to protect the interests of the class; the degree to which the class has benefited from those actions; and the amount of time and effort the plaintiff expended … ."[15] Counsel then informed the court that the named plaintiffs' involvement was limited to reviewing the pleadings, discussing negotiations with counsel, and being available by phone on the day of the mediation. The court concluded that this minimal involvement did not justify the requested $15, 000. The court, therefore, approved an incentive award of $1, 000.

         The district court's final order reflected these adjustments. In that order accepting the settlement and dismissing the action, the court reiterated that a fee of $233, 333.33 was not appropriate in this case because the settlement did not create a "common fund."[16] It explained that the financial arrangement at issue here was not a "true common fund case[]" where "fees are awarded based on a percentage of the fund actually recovered"; instead, fees were determined based on "the maximum amount of money the defendant has promised to make available."[17] Additionally, the fee requested by counsel was not commensurate with the amount of work counsel actually had expended to resolve the case. The district court therefore awarded attorneys' "fees in the amount of $73, 468.13, which represents 33.3% of the $220, 625.00 claims payment."[18]

         Similarly, "[i]n determining whether an incentive award is appropriate, and[] … in what amount," the district court "look[ed] to 'the actions the plaintiff has taken to protect the interests of the class, the degree to which the class has benefitted from those actions, and the amount of time and effort the plaintiff expended in pursuing the litigation.'"[19] The $15, 000 incentive award did not reflect properly the amount of time and effort the named plaintiffs had expended in pursuing the litigation. Consequently, the court reduced the incentive award to $1, 000 for each of the named plaintiffs.[20]

         Camp Drug Store timely appealed the court's judgment with respect to attorney fee and incentive awards.[21]

         II

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