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Aranda v. Caribbean Cruise Line Inc.

United States District Court, N.D. Illinois, Eastern Division

April 10, 2017

GERARDO ARANDA, GRANT BIRCHMEIER, STEPHEN PARKES, and REGINA STONE, on behalf of themselves and classes of others similarly situated, Plaintiffs,
v.
CARIBBEAN CRUISE LINE, INC., ECONOMIC STRATEGY GROUP, ECONOMIC STRATEGY GROUP, INC., ECONOMIC STRATEGY, LLC, THE BERKLEY GROUP, INC., and VACATION OWNERSHIP MARKETING TOURS, INC., Defendants.

          MEMORANDUM OPINION AND ORDER (CORRECTED)

          MATTHEW F. KENNELLY United States District Judge.

         In this class action, plaintiffs allege that defendants-Caribbean Cruise Line, Inc. (CCL), Vacation Ownership Marketing Tours, Inc. (VOMT), The Berkley Group Inc., and Economic Strategy Group and its affiliated entities (collectively ESG)-violated the Telephone Consumer Protection Act, 47 U.S.C. § 227, by placing millions of automated telephone calls to consumers without their consent. After roughly four years of hotly contested litigation, the parties settled the case days before trial. A little over a month ago, the Court entered an order of final approval of the settlement agreement. See Aranda v. Caribbean Cruise Line, Inc., No. 12 C 4069, 2017 WL 818854, at *1 (N.D. Ill. Mar. 2, 2017). The agreement provides that defendants will establish a common fund, in an amount no lower than $56 million and no higher than $76 million, from which class members with approved claims will be paid. Individual class members will be paid $500 per call received, unless the $76 million cap is reached, in which case they will receive a pro rata share of the fund. Plaintiffs' counsel, lawyers from Edelson PC (Edelson) and Loevy & Loevy (Loevy), have petitioned for an award of attorney's fees in an amount equal to one-third of the final common fund total, minus the costs of administering the fund and providing notice to the class. Defendants and one of the class members, Freedom Home Care, Inc., object to the size and structure of the requested fee award. For the reasons stated below, the Court grants plaintiffs' motion for attorney's fees, costs, and incentive awards but makes a fee award lower than plaintiffs have requested.

         Discussion

         The Court assumes familiarity with the background facts of the case, which the Court has discussed in a number of prior opinions. See, e.g., Aranda v. Caribbean Cruise Line, Inc., 179 F.Supp.3d 817, 820-22 (N.D. Ill. 2016). No party has objected to plaintiffs' request that each of the four plaintiffs acting as class representatives receive a $10, 000 incentive award, and nobody has disputed plaintiffs' assertion that the class representatives actively engaged in the litigation by reviewing the complaint and other documents, responding to requests for information, and sitting for depositions. The Court concludes that $10, 000 is a reasonable award for the time and effort those plaintiffs expended on behalf of the class. See Cook v. Niedert, 142 F.3d 1004, 1016 (7th Cir. 1998).

         As mentioned above, in addition to incentive awards for the class representatives, plaintiffs have requested attorney's fees in an amount equal to one-third of the common fund, minus notice and administrative costs. Defendants and Freedom Home Care object to the size and structure of the requested award. They argue that attorney's fees in similar cases usually comprise a smaller percentage of the common fund and that plaintiffs have failed to justify the award of a higher percentage in this case. In addition, defendants and Freedom Home Care contend that the flat-percentage structure of the requested award deviates from the "sliding scale" model courts in the Seventh Circuit often use to award attorney's fees for class action settlements, a model outlined by the Seventh Circuit in In re Synthroid Marketing Litigation, 264 F.3d 712, 721 (7th Cir. 2001) (Synthroid 1).

         Courts overseeing certified class actions "may award reasonable attorney's fees . . . that are authorized by law or by the parties' agreements." Fed.R.Civ.P. 23(h). Defendants in this case have agreed to pay a reasonable fee award out of the settlement's common fund, up to a maximum of $24.5 million. In "common fund" cases like this, plaintiffs' attorneys petition the Court to recover their fees out of the fund, and the Court determines the appropriate portion of the fund that plaintiffs' counsel may recover. Nationsbank of Georgia, N.A., 34 F.3d 560, 563 (7th Cir. 1994). To determine the reasonableness of counsel's fee requests in such cases, a court "must balance the competing goals of fairly compensating attorneys for their services rendered on behalf of the class and of protecting the interests of the class members in the fund." Skelton v. Gen. Motors Corp., 860 F.2d 250, 258 (7th Cir. 1988).

         In the Seventh Circuit, when determining the appropriate fee levels in common-fund cases, a court "must do [its] best to award counsel the market price for legal services, in light of the risk of nonpayment and the normal rate of compensation in the market at the time." Synthroid 1, 264 F.3d at 718. In the absence of a negotiated agreement between the plaintiffs and their attorneys, the Seventh Circuit's market-based approach requires the Court to "set a fee by approximating the terms that would have been agreed to ex ante, had negotiations occurred." Id. at 719. In addition to considering the risk of nonpayment and data about normal compensation rates, a court attempts to determine the market rate by looking to factors such as the quality of counsel's performance, the amount of work necessary to resolve the litigation, and the stakes of the case. Id. at 721.

         A. General size and structure of the fee award

         Plaintiffs argue that an award amounting to one-third of the net common fund accurately reflects the result of a hypothetical ex ante negotiation. Plaintiffs' counsel represent that Edelson, one of the two firms representing plaintiffs, regularly charges a contingency fee of at least one-third of the recovery, plus expenses, when it brings TCPA cases on behalf of individual plaintiffs. Professor Todd Henderson, one of plaintiffs' experts, reports that other attorneys charge between 40 and 45 percent of the recovery in such cases. According to plaintiffs, counsel's request of one-third of the common fund, without an accompanying request for payment of costs and expenses, is thus less than a standard rate for individual TCPA cases. This lower rate is unsurprising, they explain, because class actions allow for more efficient resolution of claims. Professor William Rubenstein, another of plaintiffs' experts, notes that counsel's requested rate of one-third would be higher than the average rate approved in consumer class actions in the Seventh Circuit, but plaintiffs contend that the above-average rate is justified (and would be agreed to ex ante) because of the high value plaintiffs' lawyers generated in the case.

         Plaintiffs rely in large part on Professor's Henderson's expert report to establish that plaintiffs' attorneys generated better-than-average value for the class and should be paid accordingly. Professor Henderson distinguishes between cases with high and low inherent values. In a case with high inherent value, the defendant or defendants are solvent, their potential exposure is high, and liability is relatively obvious and easy to establish. Imagine, for example, a large multinational corporation whose widely sold product turns out to have a clear defect that injured millions of consumers. In such a case, the defendant likely would be willing to settle the case for a large amount soon after the filing of the complaint. For cases like that, plaintiffs argue that class members and their attorneys would agree to a lower fee in an ex ante negotiation because there is "no need to pay counsel to 'produce' a recovery that is there for the asking." Synthroid 1, 264 F.3d at 721. But in a case where there are apparent obstacles to recovering a significant sum (or any sum at all), plaintiffs argue, potential class members would be willing to pay a higher rate to a law firm that would produce a large recovery. In such cases, Professor Henderson explains, to the extent the class can obtain a high-value recovery, that value is generated by the work of the lawyers.

         Professor Henderson identifies a number of characteristics of this case that indicate it is a "lawyer-generated-value" case. First, he notes that although the conduct giving rise to this case allegedly involved over 50 million calls placed to individuals across the country, only five TCPA cases were brought against defendants, three of which were consolidated into this case. Thus the relatively low level of interest from the plaintiffs' bar "suggests that most members of the . . . bar saw this litigation as too risky for their practices." Silverman v. Motorola Sols., Inc., 739 F.3d 956, 958 (7th Cir. 2013). Similarly, only two firms served as class counsel, and the expertise of each firm (Edelson's expertise in TCPA cases and Loevy's expertise in conducting class action trials) appeared to complement the other's. According to Professor Henderson, this complementary collaboration between only two firms contrasts with cases in which a large number of firms with overlapping skill sets bring a case together, hoping to extract and share a significant portion of the case's inherent value. Unlike those cases, he says, this case is one in which the two firms worked together efficiently to generate value for the class.

         Professor Henderson also points to circumstantial evidence indicating that defendants, themselves, placed a low value on the case at the outset and in its early stages. Specifically, Professor Henderson notes that defendants were unwilling to offer any significant cash value to settle the case early on and only became willing to settle for a significant amount after a class had been certified and plaintiffs had survived motions to dismiss and two motions for summary judgment. This course of dealing suggests, according to Professor Henderson, that the case's value was not inherent but was generated over time through counsel's efforts. Finally, Professor Henderson argues, the quality of the settlement for individual class members-specifically, the fact that each approved claimant stands to gain hundreds of dollars from the settlement- shows that the high settlement total is not simply the result of the size of the class, but reflects the value that counsel generated for the class by litigating the case until the eve of trial. Thus, according to Professor Henderson, plaintiffs in an ex ante bargaining situation would gladly agree to pay a high percentage for a large recovery in this low-inherent-value case. Professor Rubenstein reaches the same conclusion by considering similar factors. See Rubenstein Decl. [dkt. no. 533-4] at 36-37 (discussing, among other factors, uncertainty of liability and settlement at outset of litigation, significance of monetary relief obtained for class, and length and contested nature of litigation).

         Plaintiffs concede that "several courts in this District considering fee requests in TCPA cases have applied different [fee] structures, such as the declining marginal percentage scale used in In re Capital One Telephone Consumer Protection Act Litigation, 80 F.Supp.3d 781, 803-06 (N.D. Ill. 2015) [(Holderman, J.)]." Pls.' Mot. for Attorneys' Fees at 17. The district court in Capital One, a TCPA class action that resulted in a $75.5 million settlement, modeled its award after the award made in In re Synthroid Marketing Litigation, 325 F.3d 974, 980 (7th Cir. 2003) (Synthroid 2). In Synthroid 2, the Seventh Circuit broke a class-action settlement fund into tiers or bands and awarded class counsel a decreasing percentage of each band: 30% of the fund's first $10 million, 25% of the next $10 million, 22% of the band from $20 million to $46 million, and 15% of everything about $46 million. Synthroid 2, 325 F.3d at 980. The Seventh Circuit has explained the rationale behind this so-called "sliding scale" award structure as follows:

Many costs of litigation do not depend on the outcome; it is almost as expensive to conduct discovery in a $100 million case as in a $200 million case. Much of the expense must be devoted to determining liability, which does not depend on the amount of damages; in securities litigation damages often can be calculated mechanically from movements in stock prices. There may be some marginal costs of bumping the recovery from $100 million to $200 million, but as a percentage of the incremental recovery these costs are bound to be low. It is accordingly hard to justify awarding counsel as much of the second hundred ...

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