Saying a proposed settlement agreement in which a lawyer would receive over 98 percent of the proceeds “does not come close to meeting the standards of fairness and reasonableness,” a federal judge in Chicago has rejected the request of two truck companies to settle a class action dispute over junk faxes sent by one of the companies.
Grok Lines Inc., of Palatine, which initiated a class action claim against Murray, Ky.-based Paschall Truck Lines, was pursuing a $100,000 settlement. Under the proposed agreement, Grok would keep $1,500, while its attorney, Joe Siprut, would collect $98,500. Putative class members would get only an injunction guaranteeing Paschall would stop sending junk-marketing faxes.
U.S. District Judge Edmond E. Chang denied approval of the deal in an opinion issued Sept. 18 in Chicago.
In October 2014, Grok filed the class action, alleging “Paschall sent unsolicited junk-marketing faxes to Grok Lines and numerous other unwilling recipients” in violation of the federal Telephone Consumer Protection Act. Breaking that law is punishable by actual damages or statutory damages of $500 per violation.
Early on, the court dismissed a Grok state-law claim for failure to state an adequate claim, then rejected Paschall’s argument the faxes did not constitute unlawful advertisement. During the discovery period that followed, a single list of fax numbers Paschall used surfaced, pegging the size of the class around 180. During settlement negotiations, the companies purportedly agreed “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.”
Rather, Grok and Paschall negotiated the legal fees and incentive award. After a hearing in July during which a judge raised doubts “about the propriety of the settlement,” the parties filed a supplemental briefing that suggested donating either some or all of the $98,500 attorney portion to charity.
In discussing his logic, Chang relied heavily on Federal Rule of Civil Procedure No. 23 in regards to class actions and the court’s responsibility to class members. He said Siprut missed a “fundamental point” regarding the lawsuit, that being Paschall was accused of sending one junk fax to a large number of companies, not a repeated pattern of behavior that required court intervention.
“Sure, an injunction can be a powerful, long-lasting tool secured by a settlement in circumstances where it bars a party from doing something harmful that it has been doing, is currently doing and will continue to do,” Chang wrote. “But a settlement agreement that on paper appears to be a dam holding back a flood is superfluous if there is nothing to hold back. … there was no reason to believe that Paschall would send out bulk advertising faxes again; not to Grok Lines, not to class members, not to anyone.”
Beyond the weakness of the injunction, Chang said it is unacceptable to allocate zero settlement dollars to class members, noting Siprut maintains “meaningful monetary relief under the TCPA is simply not feasible” while negotiating a settlement that awards his firm $98,500.
Chang further noted Paschall appears willing to pay regardless of the recipient. At $500 per violation, with a recipient list of 180, Paschall would be on the hook for $90,000 in statutory damages if the entire class submitted claims. That means the $100,000 settlement would fully cover the damages. While leaving just $8,500 for legal fees is unfair, Chang wrote, so is giving the lawyers $98,500 and the class members nothing.
Chang told both parties they will need to “craft an agreement that allocates the settlement fund between counsel and class members in a matter consistent” with legal precedent, finding acceptable Siprut’s figure of 35 percent of the settlement fund after administrative costs are subtracted.
Paschall Truck Lines was represented in the case by the firm of Scopelitis Garvin Light Hanson & Feary, P.C. , with offices in Indianapolis and Chicago.