A federal appeals court rejected a request for attorney’s fees that exceeded the amount paid to claimants in a quickly settled lawsuit over faxed ads, as judges faulted the attempt by plaintiffs’ lawyers to lay claim to one-third of a potential settlement amount, rather than basing their fee request on the actual deal.
According to court documents, a class-action suit against Cochran Pharmaceutical was settled within months of being filed, before the pharmaceutical company even filed an answer to the complaint. The suit was brought by a class of drugstores and pharmacies that received unsolicited sales faxes from Cochran, asserting the faxes violated the federal Telephone Consumer Protection Act.
Plaintiffs, led by named plaintiff Camp Drug Store Inc., were represented by attorneys with the firms of Carney Bate & Pulliam PLLC, of Little Rock, Ark., and Bock, Hatch, Lewis & Oppenheim LLC, of Chicago. The action was filed in 2016 in Southern Illinois federal court.
Under the settlement, Cochran agreed to “make up to $700,000 available” to settle the case but did not create a separate account to hold the funds. The agreement stated each representative plaintiff was entitled to a $15,000 incentive award and that class counsel should be paid one-third “of the settlement fund.”
After all class members had been notified and given time to respond to the suit, Cochran paid out $220,625 to claimants. In their motion for final approval of the settlement, however, plaintiffs’ attorneys requested fees of $233,363, nearly $13,000 more than the total amount claimants could receive under the settlement. The plaintiffs argued that $233,333 is one-third of the initial $700,000 made available for settlement, and requested an additional $30,000 for out-of-pocket costs.
U.S. District Judge Staci Yandle – who had expressed misgivings from the outset about the large amount of attorney’s fees considering how quickly and easily the case was settled – determined the requested amount was inappropriate and reduced it to $73,000, one-third of the amount actually paid to claimants.
“[T]here was no real litigation in this case,” Yandle wrote. “The case was filed. Counsel entered their appearance. They requested a stay. They began negotiations … and then they announced a settlement.”
The district judge said the $700,000 was not actually a settlement fund because the settlement required any unclaimed dollars to revert back to Cochran. The company did not turn over the full amount to be divided among claimaints, the court said; the $700,000 was a security deposit. The appropriate amount on which to base attorney’s fees was the amount paid.
Yandle also found $15,000 was too high an incentive award for the representative plaintiffs and reduced the award to $1,000 per plaintiff.
The lead plaintiff, Camp Drug Store, appealed, but the appellate court was unsympathetic. The three-judge panel of the U.S. Seventh Circuit Court of Appeals said the $700,000 did not fit the definition of a settlement fund; it was simply a security against all potential claims.
The appeal was decided by U.S. Court of Appeals Seventh Circuit judges Kenneth F. Ripple, Daniel A. Manion and Diane S. Sykes. Judge Ripple wrote the court’s opinion.
In the opinion, Judge Ripple stated the common-fund argument had another, more basic flaw – no case law dictates that class counsel is entitled to a specific percentage of a common fund.
“Even if a settlement is a common fund, the fee award still must be reasonable,” the judge wrote. “The district court concluded that class counsel’s requested fee of nearly a quarter million dollars for merely filing a complaint and negotiating a settlement bore little relationship to market reality.
“…Given the paucity of effort expended by counsel compared to the size of the proposed fee, the district court did not abuse its discretion in concluding that the award be reduced accordingly.”
The appeals judges similarly agreed with the district judge’s assessment of the incentive awards. While incentive awards are justified to compensate named representatives for their willingness to pursue their claims, in this case the representatives did not do $15,000 worth of work, the Seventh Circuit judges said. The representatives provided information about the faxes they had received from Cochran, reviewed the complaints, approved the proposed settlement and made themselves available by phone during mediation, though they were not involved in the actual negotiations.
“Given how little exertion the named plaintiffs expended in pursuing this action, the district court’s award of $1,000 was among the reasonable options from which the district court could choose,” Judge Ripple wrote. “Consequently, there was no abuse of discretion, and we will not disturb the district court’s incentive award.”
Defendants are represented in the action by attorneys with the firms of Troutman Sanders, of Atlanta, and Hinshaw & Culbertson LLP, of Belleville.